13-Working-capital - Working Capital Management Alternative...

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Working Capital 1 Working Capital Management Alternative working capital policies Cash, inventory, and A/R management Accounts payable management Short-term financing policies Bank debt and commercial paper
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Working Capital 2 Basic Definitions Gross working capital: Total current assets. Net working capital: Current assets - Current liabilities. Net Operating Working Capital (NOWC): Operating CA – Operating CL = (Cash + Inv. + A/R) – (Accruals + A/P) (More…)
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Working Capital 3 Working capital management: Includes both establishing working capital policy and then the day-to-day control of cash, inventories, receivables, accruals, and accounts payable. Working capital policy: The level of each current asset. How current assets are financed.
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Working Capital 4 The cash conversion cycle (CCC) focuses on the time between payments made for materials and labor and payments received from sales: Cash Inventory Receivables Payables conversion = conversion + collection - deferral . cycle period period period Cash Conversion Cycle
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Working Capital 5 Cash Conversion Cycle (Cont.) CCC = + CCC = + 45.6 – 30 CCC = 75.7 + 45.6 – 30 CCC = 91.3 days. Days per year Inv. turnover Payables deferral period Days sales outstanding 365 4.82
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Working Capital 6 Cash Management: Cash doesn’t earn interest, so why hold it? Transactions
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This note was uploaded on 10/04/2011 for the course FIN 6406 taught by Professor Sturm,r during the Spring '08 term at University of Central Florida.

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13-Working-capital - Working Capital Management Alternative...

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