Chap 15overview.ppt - Chap 15 Overview Working Capital...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Chap 15 Overview Working Capital Management
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Working capital Basic definitions Working capital is defined as the current assets used in the business i.e. cash and securities, accounts receivable and inventory Net working capital is current assets minus current liabilities Net operating working capital is current assets minus non-interest bearing current liabilities
Background image of page 2
Related liquidity ratios Current ratio is current assets divided by current liabilities – a good measure of liquidity. Quick ratio is current assets less inventories divided by current liabilities - an acid test
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Working capital policy involves two basic questions What is the appropriate amount of current assets How should current assets be financed
Background image of page 4
Sound working capital policy Minimizes time between cash expenditures on materials/labor and the collection of cash on sales Firms typically follow a cycle in which they purchase inventory, sell goods on credit, and then collect accounts receivable. This cycle is known as the cash conversion cycle (CCC)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Cash Conversion Cycle CCC = Inventory conversion period + receivables collections period - payable deferral period
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/08/2010 for the course BUS 170 at San Jose State University .

Page1 / 15

Chap 15overview.ppt - Chap 15 Overview Working Capital...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online