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Working Capital Policy

Working Capital Policy - The Management of The Working...

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1 The Management of The Management of Working Capital Working Capital Stony Brook College of Business BUS 330 V. Giardini
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2 WORKING CAPITAL Assets and liabilities required to operate a business on a day to day basis Cash Payables Receivables Accruals Inventory Short Term - Turn Over Continually TRADITIONAL DEFINITIONS TRADITIONAL DEFINITIONS Gross Working Capital = Current Assets Net Working Capital = Current Assets - Current Liabilities WORKING CAPITAL REQUIRES FUNDING WORKING CAPITAL REQUIRES FUNDING Net working capital reflects the funding required to support routine operations THE OBJECTIVE OF WORKING CAPITAL MANAGEMENT THE OBJECTIVE OF WORKING CAPITAL MANAGEMENT Run the company effectively with as little money tied up in the current accounts as possible. Implies trade-offs because it's easier to run a business with more working capital than with less
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4 PERMANENT AND TEMPORARY WORKING CAPITAL PERMANENT AND TEMPORARY WORKING CAPITAL Temporary Working Capital supports seasonal operations and need not be maintained all year $ $ Temporary Working Capital Permanent Permanent Working Capital Working Capital Fixed Assets Fixed Assets Time Time Stable Company Seasonal Company Working Capital Needs of Different Firms
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5 $ Temporary Working Capital Short-Term Debt Financing Long-Term Debt Permanent and Equity Working Capital Financing Fixed Assets Time (a) Conservative Policy Using Largely Long Term Sources Working Capital Financing Policies FINANCING WORKING CAPITAL FINANCING WORKING CAPITAL
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6 $ Temporary Working Capital Short-Term Debt Financing Permanent Working Capital Long-Term Debt and Equity Fixed Assets Financing Time (b)
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