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WORKING CAPITAL AND FINANCIAL PLANNING P A R 16 Working Capital Management 17 Financial Planning and Forecasting T 6 C APTE R H 16 WORKING CAPITAL...

Explain the cash conversion cycle (Figure 16-1) in your text, Fundamentals of Financial Management. I have attached chapter 16 that contains figure 16-1 (pgs 514-515
Working Capital Management Financial Planning and Forecasting 16 16 17 17 WORKING CAPITAL AND FINANCIAL PLANNING 6 PART
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WORKING CAPITAL MANAGEMENT Best Buy Successfully Manages Its Working Capital Best Buy Company, North America’s largest consumer electronics retailer, operates Best Buy and Musicland stores. Its stock price sold for $67 in June 2005, up from $20 three years earlier. 1 This success stemmed from sound financial and operating practices, especially its working capital management, the focus of this chapter. Working capital management involves finding the optimal levels for cash, mar- ketable securities, accounts receivable, and inventory and then financing those assets in the least-cost manner. Most of Best Buy’s customers use credit cards, so neither in-store cash nor accounts receivable is significant. Therefore, Best Buy’s working capital policy focuses on its inventories. To maintain sales, stores must be well stocked with the goods customers are seeking at the time. This involves determining what new products are coming out, where they can be obtained at the lowest cost, and then delivering them to stores in a timely manner. Dramatic improvements in communications and computer technology have transformed the way Best Buy manages its inventories. It now collects real-time data from each store on how each product is selling, and its computers place orders automatically to keep the shelves full. Moreover, if sales of an item are slipping, prices are lowered to reduce stocks of that item before the situation gets out of hand and steeper price cuts become necessary. After studying this chapter, you should have a good understanding of how working capital man- agement affects profits and stock prices. C H A P T E R 16 Best Buy Company Putting Things In Perspective Putting Things In Perspective About 60 percent of a typical financial manager’s time is devoted to work- ing capital, and many students’ first jobs focus on working capital. This is particularly true in smaller businesses, where most new jobs in the United States are being created. 1 Later in 2005, Best Buy announced a two-for-one stock split. © ALAN SCHEIN PHOTOGRAPHY/CORBIS
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Finance-8088590.doc

Explain the cash conversion cycle (Figure 16-1) in the text, Fundamentals of Financial
Management. Attached chapter 16 that contains figure 16-1 (pgs 514-515
The cash conversion cycle or the...

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