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Chapter 16 Financial Management

Chapter 16 Financial Management - Financial Management...

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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 1 Financial Management Chapter 16: Current Asset Management ADM 2350 Professor: Dr. William F. Rentz
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 2 Introduction The first half of the chapter reviews the various cash management decisions made by financial managers. The financial managers must consider the risk vs. return trade-offs characteristic of these decisions.
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 3 Introduction The second half of this chapter discusses the management of accounts receivable and inventory as an important investment in current assets. Note that the inventory material will not be discussed in this course, as it is covered in other courses.
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 4 Cash and Marketable Securities The most liquid of a firm’s assets Cash consists of currency and deposits in chequing accounts Marketable securities consist of S-T investments made with idle cash
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 5 Cash Management Function Concerned with determining: The optimal size of a firm’s liquid asset balance The most efficient methods of controlling the collection and disbursement of cash The appropriate types and amounts of S-T investments
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 6 Cash Management Decisions Must consider the risk versus expected return trade-offs from alternative policies Check out cash management at this Web site: http://www.bankofamerica.com/
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 7 Reasons for Holding Liquid Assets Transactions Precautionary Future requirements Speculative Compensating balances
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 8 Cash Budget Required because cash inflows and outflows are seldom synchronized First step in cash management
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 9 Cash Budget Show forecasted receipts and disbursements Show forecast of any cumulative shortages or surpluses Series of cash budgets Daily • Weekly • Monthly
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 10 Bank Services Maintenance of disbursement and payroll accounts Collection of deposits Lines of credit (formal or informal) Term loans
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 11 Bank Services Handling of dividend payments Registration and transfer of stock Supply credit information Consulting advice
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© 2007 Dr. William F. Rentz & Associates, All Rights Reserved 12 Cash Management Determination of the optimal size Compensating balance requirements establish lower limit
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