FIN%204260%20Chapter%201

FIN%204260%20Chapter%201 - Short-Term Financial Management...

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Short-Term Financial Management Introduction Chapter 1 - The Role of Working Capital Prepared by Patty Robertson May not be used without permission
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Course Outline Part I Introduction to Liquidity Part II Management of Working Capital Part III Corporate Cash Management Part IV Forecasting & Planning Part V Short-Term Investing & Financing 2
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Part I - Introduction to Liquidity Chap ters Cove red Chapter 1 The Role of Working Capital Chapter 2 Solvency, Liquidity & Financial Flexibility Chapter 3 Valuation 3
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The Role Of Working Capital Chapter 1 Agenda 4 Sales A/R Cash Inv Understand how the management of the current accounts (inventory, receivables, payables, and accruals) causes cash flows and profits to diverge.
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Working Capital Management 5 Short-Term Financial Management (aka Working Capital Management) is the day-to- day management of the operating needs of a firm through its current assets and current liabilities. It involves managing cash, accounts receivable, inventory, accounts payable, and accruals. The goal is to ensure a firm has the
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S.T. Finance Versus L.T. Finance 6 In other courses, you studied long-term financial decision-making. For example, the asset investment decision evaluated the cash flows associated with long-term capital budgeting projects. Short-term finance involves cash flows that occur within the year. Since these cash flows are unsynchronized and uncertain, the timing of these cash flows is critical.
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The Importance of Cash “You can miss your earning’s targets and survive, but you can only run out of cash once.” -- Edward Liebert Cash flow is the lifeblood of a firm. The firm must design a cost structure to operate profitably or it will fail. Similarly, profitable companies, if cash- 7
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Newspaper Headlines 8 The followi ng headli nes reinfor ce the import ance of cash and the Shell Expects Output, Cash Flow to Grow Facebook Cites Rapid Growth in Users, Cash Flow Xerox Seeks to Reassure Investors Over Cash Position Cisco Free Cash Flow Exxon Draws Down Cash Reserves
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Financial Statements 9 Financial statements report the performance of a firm, and include the: Balance sheet Income statement Statement of retained earnings Statement of cash flows These interrelated statements show where money came from, where it went, and where it is now.
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The Balance Sheet 10 The balance sheet is a snapshot of the financial accounts of a firm at a fixed point in time.
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Assets 11 Assets are categorized as current (CA) or fixed (FA). Assets are listed on the balance sheet in order of liquidity. Frequently, more than one timeframe is presented for comparison. Current assets are expected to be converted to cash within a year.
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