Chapter 21 Working Capital Management 0
0 Chapter 21 Working Capital Management
Chapter Outline Cash Management:Collection,Disbursement, and Investment Credit and Receivables Inventory Management Inventory Management Techniques
1 Chapter Outline n Cash Management: Collection, Disbursement, and Investment n Credit and Receivables n Inventory Management n Inventory Management Techniques
Reasons for Holding Cash Speculative motive-hold cash to take advantage of unexpected opportunities Precautionary motive-hold cash in case of emergencies Transaction motive-hold cash to pay the day-to- day bills Trade-off between opportunity cost of holding cash relative to the transaction cost of converting marketable securities to cash for transactions
2 Reasons for Holding Cash n Speculative motive – hold cash to take advantage of unexpected opportunities n Precautionary motive – hold cash in case of emergencies n Transaction motive – hold cash to pay the day-to- day bills n Trade-off between opportunity cost of holding cash relative to the transaction cost of converting marketable securities to cash for transactions
Cash Collection Payment Payment Payment Cash Mailed Received Deposited Available Mailing Time→Processing Delay.→+Availability Delay→ Collection Delay One of the goals of float management is to try to reduce the collection delay.There are several techniques that can reduce various parts of the delay. 3
3 Cash Collection Payment Payment Payment Cash Mailed Received Deposited Available Mailing Time Processing Delay Availability Delay Collection Delay One of the goals of float management is to try to reduce the collection delay. There are several techniques that can reduce various parts of the delay
Cash Disbursements Slowing down payments can increase disbursement float-but it may not be ethical or optimal to do this Controlling disbursements Zero-balance account Controlled disbursement account 4
4 Cash Disbursements n Slowing down payments can increase disbursement float – but it may not be ethical or optimal to do this n Controlling disbursements q Zero-balance account q Controlled disbursement account