Chapter 15. Managing Working Capital

Chapter Learning Objectives:


  • Explain what is meant by a firm's operating cycle and its cash conversion cycle.

  • Describe the impact of the operating cycle on the size of investment in accounts receivable and inventories.

  • Explain how seasonal and cyclical trends affect the operating cycle, cash conversion cycle, and investments in current assets.

  • Explain how a cash budget is developed and how a treasurer will use it.

  • Describe the motives underlying the management of cash and marketable securities.

  • Briefly explain what is involved in accounts receivable management and indicate how it is carried out.

  • Describe inventory management from the standpoint of the financial manager.

Where We Have Been...

The previous chapters have introduced us to financial statements and some ways they can help managers and investors. Financial statements contain data that is used to do ratio analysis and long-term financial planning. In addition to helping users identify trends, ratio analysis can help users analyze a firm's operating condition and can help with short-term financial planning.

Where We Are Going...

A firm's short-term financing needs will be affected by near-term sales growth and how efficiently the firm manages its working capital accounts. The next chapter, Chapter 16, "Short-term Business Financing," reviews fund sources to help a firm finance its short-term needs. Ongoing short-term financing needs may reflect ...

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