FI.Chapter22 - b pecr al'1/J'i*il,frtd r Chapter22 Working...

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al b pecr *'i *il,frtd Working Capital Management 774 Derivatives and Risk Management 816 Bankruptcy, Reorganization, and Liquidation 851 Mergers, LBOs, Divestitures, and Holding Companies 8B1 Multinational Financial Managemenl 929 '1 ..-/J' €" & { r* Chapter 22 Chapter 23 Chapter 24 Chapter 25 Chapter 26
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BffcrFeEa'ag *c grgt** M*rcxg*a'e'e*cc* hat do QLralcomm, Bfightpoint, Quarrex, Ddl, 7 Elcven, and Best tluv havo in conrmon? Each of to a hig improvcmcnt in the acc racy of its , J.l,'rner rr,,,r(e..rnJ bcttpr l| ,iriIF lor . ,,nlr(rior,- sL, rdlr.t-. Qu.'lcomrn -l\rded up iis cotleclions and thus reduce(t its davs sales ortstanding from over 42 Llays to 35 days, a 19% improvement. Brightpoint has iaken a rnulii pronged approach. With b€tter p()ccsses to anaLvz€ il\.Lr\r,'mer- ir(dir,i.1,5 Brighrl,'irl nu" has feirer sloN-paying or uncollectable .,1,,'unt- lt l,.r\ d1-o ur,t.rllrd .upply . h. rn rn,l|r.rSrment -'fl\vJre ih.rl i. J.ed l,' pr ., ' u-1,'nrl r-' ..,1, . Llr.J Inr.' i., o\vn:)rcl uhich has helped lo$,er ils own inyeniorr becalrse it can no\,! forocast its snlc's more accurately. Nu,^r. one, f lhe be.l in ir.:r1Jr,lry I managing \^'ofking .apital, has tiecl bonuses lo '..,!h bu5in(!, l|rii. retuflr (.r dJr€r, Lower ilorkin8 capital means a smaller .,--( bd-e.,,,d " hrtt(r ltoA. {' \J,or . employees incrcase their take honrc pay if they reduce working cnpit.l. l.vpp ih(-(.onpirrr. nnd lhrrr re,n niquts tu mind as yori ren(t this ch:rpter. thes€ companies led its industry in CFO magazine'$ latcst anrluai survey of workiDg caPiial n1anagemcnt, which covered the 1,000larg(.st U.S. publicly traded firnrs. Each coDpany is raicd on thc number of days tied up in rlorking capital (DWC), 'lL fincd ,r. /Re.oi\.rt'lc- IINnl,"] I'ayables)/Dai1y sales. The typical DWC ratio is about 55, brt some conrpanies hivc much lowcr ratios. tor examplc, Dell, Apple Computer, nnd Anadafko Petroleum are amont the rcli tivelv fcw companics that have negaii\,€ DWC! This means that thesr companies have lessin receivablcs and inventory than thcv do in payabl€'s. h other words, ihey Bct paid by iheir custonrers bcfore they hnve to pav thcir supplicrs, so iheir suppliers are ir effect financing thcir operations. How cin i company drive its DWC do!\'n? Qualcomn focuscs or continuous inrprove nrcnt in its working cnpitalmanagement. Due sodr.e, vo,or sue, of aFo m.l!d n9 oi on. a by Pondy Mye6,'H.v Low Cof h Go?" CfO, Seprember l,2006 Fo oi updoleoi _rO s.,,e qo o hnpr/M.cfo..on o "o' lo' roL'9 op olol io '."/
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Wuknrg capital marugcmcnt nrvolves h{o bLlsic qucstiors: (1) What is the ippropriaLe amount1rf working cnpiL.l,bolh ill total and fo..rach specilic account, ifti (2) horv shor d \lorkiDg capilal be fnunce(l? Notc that sound r/orknrg capi tal 'nanailement goes bcyond I ance. Indeed, thc pro(cdures Ior nnprovhg $'orkhg capital m.rnagcment generally stem from oihcr discid es. For examplc, experts nr togisiics,opcratiors mantrgement, and informntion technology oftc\ n ork rrith m.trkcftlg people Lo develop betteruays to.icliver lhe tirm's pfodu.ts.
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