PPT Lecture Ch 16 - Lecture Outline and Notes I...

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Lecture Outline and Notes I. Introduction A. Financial management involves acquiring and managing funds for a business. B. Without effective management of assets, liabilities, and owners’ equity, all business organizations are doomed to fail—regardless of the quality and innovativeness of their products. II. Managing Current Assets and Liabilities PPT16.3 A. Current assets include cash, investments, accounts receivable, and inventory. B. Current liabilities are short-term debt obligations—accounts payable, wages payable, taxes payable, and notes (loans) payable. C. Short-term financial management is sometimes called working capital management because current assets and liabilities continually flow (“work”) through the organization. D. Managing Current Assets PPT16.4 The goal of financial managers who manage current assets is to maximize the returns on those assets. Managing Cash PPT16.5 Effective cash flow—the movement of money through an organization—is a crucial element facing any financial manager. Transaction balances are cash kept on hand by a business to pay normal daily business expenses. To accelerate the collection of payments from customers, companies may have customers send payments to a lockbox, an address for receiving payments that are collected by the bank and credited to the business’s account. Larger firms may use electronic funds transfer to speed up collections and cash flow. Companies generally want to collect cash quickly but pay it out slowly.
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Investing Idle Cash. When cash comes in faster than it is needed to pay bills, companies may invest the “extra” cash for short periods PPT16.6 a. Marketable securities are temporary investments of extra cash for up to one year in U.S. Treasury bills, certificates of deposit, commercial paper, or Eurodollar loans. b. U.S. Treasury bills (T-bills) are short-term debt obligations of the U.S. government. c. Commercial certificates of deposit (CDs) are issued by commercial banks and brokerage firms, are available in minimum amounts of $100,000, and may be traded prior to maturity. d. Commercial paper is a written promise from one company to another to pay a specific amount of money. e. The Eurodollar market is a market for trading U.S. dollars in foreign countries. Maximizing Accounts Receivable PPT16.8 a. Each credit sale represents an account receivable—a payment owed to a business from credit customers. b. Many firms offer discounts on purchases if they pay the invoice early. c. Discounts make cash flow through the firm faster, but they also reduce profitability. d. Profitability of accounts receivable is affected by the type of customer to which a business extends credit. e.
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This note was uploaded on 03/12/2011 for the course BUSINESS 300 taught by Professor Reynolds during the Fall '10 term at Los Rios Colleges.

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PPT Lecture Ch 16 - Lecture Outline and Notes I...

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