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ch14 - PA R T 5 SHORT-TERM FINANCIAL DECISIONS CHAPTERS IN...

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595 P A R T 5 S HORT -T ERM F INANCIAL D ECISIONS CHAPTERS IN THIS PART 14 Working Capital and Current Assets Management 15 Current Liabilities Management Integrative Case 5: Casa de Diseño
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L E A R N I N G G O A L S 596 W ORKING C APITAL AND C URRENT A SSETS M ANAGEMENT C H A P T E R Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU Accounting: In order to record and report the firm’s transac- tions, you need to understand the cash conversion cycle and the management of inventory, accounts receivable, and receipts and disbursements of cash. Information systems: You need to understand the cash conver- sion cycle, inventory, accounts receivable, and receipts and dis- bursements of cash in order to design financial information sys- tems that enhance effective short-term financial management. Management: You need to understand management of work- ing capital and current assets so that you can decide whether to finance the firm’s funds requirements aggressively or conservatively. Marketing: You need to understand credit selection and monitoring because sales will be affected by the availability of credit to purchasers; sales will also be affected by inventory management. Operations: You need to understand the cash conversion cycle because you will be responsible for reducing the cycle through the efficient management of inventory levels and costs. Review the procedures for quantitatively consid- ering cash discount changes, other aspects of credit terms, and credit monitoring. Understand the management of receipts and dis- bursements, including float, speeding collec- tions, slowing payments, cash concentration, zero-balance accounts, and investing in mar- ketable securities. LG6 LG5 Understand short-term financial management, net working capital, and the related tradeoff between profitability and risk. Describe the cash conversion cycle, its funding requirements, and the key strategies for managing it. Discuss inventory management: differing views, common techniques, and international concerns. Explain the credit selection process and the quan- titative procedure for evaluating changes in credit standards. LG4 LG3 LG2 LG1 14
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597 M edtronic, a Minneapolis-based medical technology company that developed the first implantable heart pacemaker, manufac- tures products to treat patients with heart, vas- cular, and neurological conditions; diabetes; and Parkinson’s disease. The company had a strong balance sheet and cash position, but treasurer Gary Ellis was concerned to see the average col- lection period climbing to 88 days in October 1999. He moved quickly to regain control of the com- pany’s operating cycle, the time from the beginning of the firm’s production process to collection of cash from the sale of the finished product. By July 2001, the average collection period was down to 74 days.
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