Chapter_16-Working_Cptl_Mgt

Chapter_16-Working_C - 16-1Click to edit Master subtitle style16-1CHAPTER 16Working Capital ManagementnWorking capital policiesnCash and A/R

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Unformatted text preview: 16-1Click to edit Master subtitle style16-1CHAPTER 16Working Capital ManagementnWorking capital policiesnCash managementnInventory and A/R managementnTrade creditnExercises (16-1 – 16-7, page 545 – 546, Text Book)16-2Working capital terminologynGross working capital – total current assets.nNet working capital – current assets minus current liabilities.nWorking capital policy – deciding the level ofeach type of current asset to hold & how to finance current assets.nWorking capital management – controlling cash, inventories, & A/R, plus short-term 16-33 categories of business assets that affect a firm’s working capital policy1)Temporary current assets- represent the lev. of inventory, cash & A/R that fluctuate seasonally.2)Permanent current assets- represent the base level of inventory, cash & A/R, which tends to be maintained.3)Fixed asset- represent land, building, equipments etc, would 16-4nCurrent Assets (cash, A/R, Inventory)- do not earn the firm a very high return.- these assets are liquid, but holding them is not very profitable.nNoncurrent Assets (land, building, equipment etc)- can earn a substantial return, but they are ususally not very liquid)16-5BASIC POLICIES THAT A COMPANY CAN ADOPT:1) Loose working capital policy - involves a relatively high level of current assets & minimizes risk - has the lowest expected return2) Tight working capital policy - involves a relatively low level of current assets & maximizes risk.16-63) Moderate working capital policy - involves a relatively moderate level of current assets between the lowest level & the highest level of working capital....
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This note was uploaded on 08/31/2010 for the course FM 13678 taught by Professor Kellison during the Spring '10 term at St. Clair College.

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Chapter_16-Working_C - 16-1Click to edit Master subtitle style16-1CHAPTER 16Working Capital ManagementnWorking capital policiesnCash and A/R

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