FIN419 Working Capital Strategies

FIN419 Working Capital Strategies - 1 Working Capital...

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1 Working Capital Strategies Finance For Decision Making/FIN419
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Working Capital Strategies The following review of Bank of America’s (BAC) most recent balance sheet, statement of cash flow, management comments, and footnotes includes a discussion about how each current asset and liability affects cash management strategies. The discussion includes a hypothetical 20% revenue increase with a corresponding working capital recommendation and the assumptions needed in the pro forma financial statements. With the lessons learned from this evaluation, Team B discusses an area of further development for BAC. Financial Review Current Assets and Liabilities Effect on Cash Management Current assets are the short-term assets of the organization and these include cash, inventory, accounts receivables, and any cash equivalents turned into cash within one year. Organizations use current assets to run their daily operations. Current liabilities are short-term obligations of the organization requiring payment within a year like accounts payables, notes payable, and interest. Business leaders are responsible for managing current assets and current liabilities because these items are indicative of the financial stability of the organization. A review of current assets and current liabilities is also indicative of the organization’s ability to pay its short-term obligations. The techniques the organization uses to process receipts and payments in an accurate and timely manner are the organization’s cash management policies. Current assets and current liabilities have varied effects on an organization’s cash management policies. Cash management is one component of an organization’s internal controls and is integral to an organization’s financial stability. Organizations must put systems in place to establish cash
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management practices and review these systems and practices regularly. Organizations rely on the consistent flow of cash into the organization and must understand the means by which cash flows out of the organization. Financially healthy organizations have leaders interested in attaining more cash inflows than outflows. Because of the downturn in the mortgage industry, Bank of America (BAC) faced financial setbacks. According to Yahoo Finance, Bank of America’s total current assets were (in thousands) $783,399,000 in March 2011 up from $768,234,000 in December 2010 (Yahoo! Finance, 2011). BAC acquired an additional $15 billion of assets during the first quarter of 2011 (Yahoo! Finance, 2011). Total current liabilities for the same period include $1,467,241,000 and $1,460,331,000, respectively (Yahoo! Finance, 2011). BAC gained an additional $6,910,000 of liabilities (Yahoo! Finance, 2011). Current liabilities have significant impact on cash management policies at BAC.
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This note was uploaded on 08/22/2011 for the course BUS 415 taught by Professor Barnes during the Spring '11 term at Coastal Carolina University.

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FIN419 Working Capital Strategies - 1 Working Capital...

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