FMchap15 - After reading this chapter, students should be...

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Unformatted text preview: After reading this chapter, students should be able to: Define basic working capital terminology. Calculate the inventory conversion period, the receivables collection period, and the payables deferral period to determine the cash conversion cycle. Briefly explain the basic idea of zero working capital. Briefly explain how a negative cash conversion cycle works. Distinguish among relaxed, restricted, and moderate current asset investment policies, and explain the effect of each on risk and expected return. Explain how EVA methodology provides a useful way of thinking about working capital. List the reasons for holding cash. Construct a cash budget, and explain its purpose. Briefly explain useful tools and procedures for effectively managing cash inflows and outflows. Explain why firms are likely to hold marketable securities. State the goal of inventory management and identify the three categories of inventory costs. Identify and briefly explain the use of several inventory control systems. Monitor a firms receivables position by calculating its DSO and reviewing aging schedules. List and explain the four elements of a firms credit policy, and identify other factors influencing credit policy. Learning Objectives: 15 - 1 Chapter 15 Managing Current Assets LEARNING OBJECTIVES We have never found working capital an interesting topic to students, hence it is, to us, a somewhat more difficult subject to teach than most. Perhaps thats because it comes near the end of the course, when everyone is tired. More likely, though, the problem is that working capital management is really more a matter of operating efficiently than thinking conceptually correctly-- i.e., it is more practice than theory--and theory lends itself better to classroom teaching than practice. Still, working capital management is important, and it is something that students are likely to be involved with after they graduate. Since we have only one chapter on current asset management, we try to go all the way through it. However, the chapter is modular, so it is easy to omit sections if time pressures require. Assuming you are going to cover the entire chapter, the details of what we cover, and the way we cover it, can be seen by scanning Blueprints , Chapter 15. For other suggestions about the lecture, please see the Lecture Suggestions in Chapter 2, where we describe how we conduct our classes. DAYS ON CHAPTER: 3 OF 58 DAYS (50-minute periods) Lecture Suggestions: 15 - 2 LECTURE SUGGESTIONS 15-1 When money is tight, interest rates are generally high. This means that near-cash assets have high returns; hence, it is expensive to hold idle cash balances. Firms tend to economize on their cash balance holdings during tight-money periods....
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FMchap15 - After reading this chapter, students should be...

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