3-Working Capital Management Concepts

3-Working Capital Management Concepts - Working Capital...

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Working Capital Management Concepts -Gross Working Capital: -Total Current Assets -Net Working Capital: -Current Assets – Current Liabilities -Net Operating Working Capital (NOWC): -Operating Current Assets – Operating Current Liabilities = (Cash + Inventory + A/R) – (Accruals + A/P) -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 -Cash Management: Cash doesn’t earn interest, so why hold it? -Transactions: Must have some cash to pay current bills -Precaution: “Safety stock.” But lessened by credit line and marketable securities -Compensating balances: for loans and/or services provided -Speculation: to take advantage of bargains, to take discounts, and so on. Reduced by credit line, marketable securities -The goal of cash management: -To have sufficient cash to meet the needs listed prior to this point
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This note was uploaded on 02/09/2012 for the course ECON 440 taught by Professor Fenn during the Spring '11 term at American Internation College.

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3-Working Capital Management Concepts - Working Capital...

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