For example one reason for inflated receivables may be due to late payment by

For example one reason for inflated receivables may

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For example, one reason for inflated receivables may be due to late payment by some customers. In this case, the company’s credit policy toward late-payers needs to be reexamined and enforced, or in case of inventory, just in time systems may need to be considered. Short-Term Financing Businesses rely on short-term financing from external sources for two reasons: profits may simply not be high enough to keep up with the rate at which the company is buying new assets; and many firms would rather borrow the money at the outset and make their purchases on time rather than wait to save enough money from net profits to make their desired purchases. The most prevalent forms of short-term financing available to businesses are loans from banks and other institutions, trade credit, and commercial paper. Although short-term financing is usually a cheaper option than long-term financing, it is also a riskier option. Unlike long-term financing, the loans come due soon, the lender may not be willing to renew financing on favorable terms, and short-term interest rates may rise unexpectedly. In short, finance is important to businesspeople, and the financial decisions a manager makes about how to raise, spend, and allocate money can affect every aspect of a business. In other words, financial managers need always be aware of the organization’s long-term and short-term financial needs, and make reasoned, ethical, and sound decisions to add value to the firm. Organizing and managing your financial resources introduces the proposition that you can achieve financial success through financial independence. This Unit reviews how the establishment of personal goals and an understanding of your personal financial statements are the fulcrum on which you can gain financial independence. Cash management and recognizing how the value of money changes over time are central tenets in the design of your financial portfolio. Financial planning means setting goals and deciding how much to save to meet those goals. Financial planning also means deciding what to buy today. Became most of us live with limited financial resources, buying today often means using debt, and debt can destroy even the most carefully designed financial plan. Budgeting effectively means planning today’s spending and saving to ensure that you will have the ability to spend tomorrow. The purpose of a budget is to ultimately achieve your goals. Cash includes items such as cash in your pocket, cash in your checking account, cash in a money market account, and cash in a Certificate of Deposit. Cash management requires a knowledge of the advantages and disadvantages of each type of cash account, how much liquidity is necessary, and a strategy for allocating your funds and controlling the balances in each type of cash account.
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