Chapter 16 Financial Management

Chapter 16 Financial Management - Financial Management...

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1 Financial Management Chapter 16: Current Asset Management ADM 2350 Professor: Dr. William F. Rentz
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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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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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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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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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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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7 Reasons for Holding Liquid Assets Transactions Precautionary Future requirements Speculative Compensating balances
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8 Cash Budget Required because cash inflows and outflows are seldom synchronized First step in cash management
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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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10 Bank Services Maintenance of disbursement and payroll accounts Collection of deposits Lines of credit (formal or informal) Term loans
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11 Bank Services Handling of dividend payments Registration and transfer of stock Supply credit information Consulting advice
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12 Cash Management Determination of the optimal size Compensating balance requirements
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This note was uploaded on 09/13/2011 for the course ADM 2350 taught by Professor Ronda during the Fall '11 term at University of Ottawa.

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Chapter 16 Financial Management - Financial Management...

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