F307 Chapter 8: Introduction To Working Capital Ma
F307 Chapter 8: Introduction to Working Capital Ma
Exam (elaborations)
F307 Chapter 8: Introduction to Working Capital Management || with 100% Correct Answers.
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Course
F307 Chapter 8: Introduction to Working Capital Ma
Institution
F307 Chapter 8: Introduction To Working Capital Ma
Working Capital Management correct answers the responsibility of treasury professional to manage firm's financial assets to ensure sufficient liquidity to meet current & future obligations in timely & cost-effective manner
Cash Management correct answers another name for working capital manageme...
F307 Chapter 8: Introduction to Working Capital
Management || with 100% Correct Answers.
Working Capital Management correct answers the responsibility of treasury professional to
manage firm's financial assets to ensure sufficient liquidity to meet current & future obligations
in timely & cost-effective manner
Cash Management correct answers another name for working capital management
working capital correct answers CA - CL: cash & liquid assets that can quickly be converted to
cash
working capital can be obtained (increased) by? correct answers (1) collecting cash flow from
operations (2) increasing debt (3) selling assets & investments (4) selling equity
working capital can be used (reduced) by? correct answers (1) using cash flow in operations (2)
repaying debt (3) purchasing assets & investments (4) paying dividends & buying back
stock/equity
current asset management correct answers varying views by financial, operations & sales
managers -- so cross-functional effort
operational manager's view on CA management correct answers prefer large inventory of raw
materials or partially finished goods to meet production quotes
sales manager's view on CA management correct answers favor large inventory of finished
goods to meet consumer demands & a liberal credit policy to stimulate sales
financial manager's view on CA management correct answers prefer to minimize inventory &
A/R to minimize cost of financing these assets
current assets correct answers expected to be converted into cash within on year
major current asset accounts correct answers cash, marketable securities, A/R, inventory, &
prepaid expenses
current liabilities correct answers required to be paid for within one year
primary current liability accounts correct answers A/P, debt maturing in less than one year, notes
payable, & accrued liabilities
operating cycle or cash conversion cycle correct answers company's daily operating activities
create flow of cash through various working capital accounts
,working capital strategies correct answers affect many financial ratios used to evaluate financial
positions -- current & quick ratios
current ratio correct answers = (CA / CL)
types of cash flows that treasury professionals must consider correct answers (1) cash outflows
(2) cash inflows (3) concentration/funding flows (4) liquidity management flows
cash outflows correct answers process referred to as purchase-to-pay timeline
examples of cash outflows correct answers funds disbursed to employees, vendors & suppliers;
lenders; local, state & federal tax agencies; bondholders; & shareholders
cash inflows correct answers process referred to as the order-to-cash timeline
examples of cash inflows correct answers funds collected from customers, obtained from
financial sources (loan or investment income) and/or received from other sources
concentration/funding flows correct answers involve internal transfers among operating unit of a
company & between a firm's various bank accounts with the objective of pooling funds for other
purposes or funding various disbursement accounts
liquidity management flows correct answers involve using organizations liquidity reserves in
most effective manner
if surplus of funds correct answers may (1) invest in suitable investments or (2) pay down
existing debt
if shortage of funds correct answers may (1) sell off investments or (2) draw on available debt
sources (credit lines or commercial paper issuance)
purchase-to-pay timeline correct answers represents time from purchase of raw materials, retail
goods, or services until payment is received & collected -- period of time between purchase &
sale involves creation of inventory
inventory timeline for a manufacturing company correct answers process of acquiring raw
materials/parts, converting them into finished goods, storing goods as inventory & shipping
goods sold -- may be lengthy
inventory timeline in a retail business correct answers time from acquisition of retail inventory to
its ultimate sale -- may be faster
, inventory timeline for a business that supplies customers with info correct answers (from
economic advice & real estate listings) -- the process of filling an order may be immediate,
resulting in very little actual inventory
order-to-cash timeline correct answers is a cash inflow & represents the final piece of operating
cycle -- includes all tasks involved in soliciting customers & converting inventory into sales &
cash
collection-to-cash cycle correct answers the actual receipt & processing of a payment
cash flow timeline correct answers combine purchase-to-pay, inventory, & order-to-cash
timelines -- difference between timelines creates working capital (a reserve of cash)
purchase-to-pay & order-to-cash correct answers "opposite sides of the same coin"
float correct answers time interval/delay between start & completion of a specific phase or
process occurring along cash flow timeline -- result of wait time & inefficiencies
wait time correct answers time lost while waiting for someone else to take action or time needed
to transmit info between 2 parties
affect of e-commerce on float created by paper processes correct answers declining recently
disbursement/collection float correct answers period of time that occurs between creation of a
payment & actual time when payment is credited in good funds to a payee's account -- small
piece of float
common practice in many B2B transactions correct answers mailed invoice to the buyer w/
remittance advice being mailed back to the seller
different types of float correct answers (a) collection float (b) disbursement float (c) invoicing
float (d) payment float
collection float correct answers time interval/delay between time buyer/payor initiates payment
& time the seller/payee receives good funds -- applies principally to paper-based payment
instruments
types of float/delays that paper-based payment instruments are subject to correct answers (1)
Mail float (2) processing float (3) availability float
mail float correct answers time interval/delay between the day a payment (& related remittance
info) is mailed & the day it is received by payee or at payee's processing site -- ranges between
1-2 days to weeks in international payments
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