Chapter 15 Financial Management

Chapter 15 Financial Management - Financial Management...

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1 Financial Management Chapter 15: Working Capital Policy and Short Term Financing ADM 2350 Professor: Dr. William F. Rentz
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2 Introduction This chapter deals with the management of working capital, which involves decisions about the optimal overall level of current assets and the optimal mix of short-term funds used to finance the company’s assets.
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3 Working Capital Policy Involves decisions about a company’s current assets (C/A) and current liabilities (C/L) What they consist of? How they are used? How their mix affects the risk-return characteristics of the company?
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4 Working Capital Policy Working capital Total investment in C/A Net working capital C/A – C/L
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5 Working Capital Management Firm’s optimal level of C/A Optimal mix of S-T and L-T debt Level of investment in each type of C/A Specific sources and mix of S-T credit the firm should employ
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6 Working Capital Represents assets that flow through the firm Turned over at a rapid rate Usually recovered during the operating cycle when inventories are sold and receivables are collected Needed because of the asynchronous nature of cash receipts and disbursements
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7 Operating Cycle Characterized by the time intervals between the following dates: Date 1 Purchase of resources Date 2 Pay for resource purchases Date 3 Sell product on credit Date 4 Collect receivables
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8 Operating Cycle Operating cycle = 1 to 4
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Chapter 15 Financial Management - Financial Management...

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