Working capital management

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Working capital management it is a company strategy tailored towards the management of the current assets and the current liabilities to ensure efficient operation regarding finance for the organization. The working capital aim is to guarantee that there is sufficient cash flow for financing the short-term obligations of the organization (Szpulak, 2015). The paper will focus on the following two components of working capital, i.e., management of inventories and credit policies. Credit policies these are policies related to how organization extends credits to customers.

The organization can follow a stringent credit policy or lenient policy. While establishing credit policies, it is essential to define the credit terms for the customers. The credits terms and condition can be either long or short depending on the organization for example 2/10 and N/30 credit policy. The credit term means if the customers pay, the credit within the ten days the customers granted 2% discount of the total sales. The second one says that the customer expected to settle the debt within a span of 30days. Credit policies are essential in minimizing the doubtful liability for the organization, which can result in its liquidation (Kumar & Srivastav, 2011). The HSBC bank in Australia credit policy has enabled the bank to offers loans to customers since it stipulates all the requirements.

The banks make an informed decision upon review of the creditworthiness of the customers. Management of inventories is essential to practice with any organization. The stock is item convertible into cash with a short a period. The inventories managed in an organization are the raw materials, work in progress and the finished goods. Various techniques used by the organization to manage inventories. The methods used are economic order quantity. The technique aims at minimizing the total costs. The procedures establish the total costs, the reorder levels holding costs and the number of orders to place. The inventory management applied in manufacturing companies like the Microsoft, apple companies. The companies are in a position to manage their inventories.

References

Kumar, A., & Srivastav, D. (2011). Working Capital Management: Backbone of the Company. Indian Journal Of Applied Research, 3(10), 1-2. doi: 10.15373/2249555x/oct2013/69 Szpulak, A. (2015). Evaluating net investments in the operating working capital under certainty: The integrated approach to working capital management. Business and Economic Horizons, 11(1), 28-40. doi: 10.15208/beh.2015.

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Working Capital Management

Read through the below post and provide any on of the following: APA format 300 Words.

.Ask a probing question, substantiated with additional background information, evidence or research.

· Share an insight from having read your colleagues’ postings, synthesizing the information to provide new perspectives.

· Offer and support an alternative perspective using readings from the classroom or from your own research.

· Validate an idea with your own experience and additional research.

· Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

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Working Capital Management:

It is a very important aspect of a business to manage its assets and inventory to get a higher return on every dollar invested in the business. Working capital indicates a company’s overall health and it is helpful for its shareholders to decide whether they want to invest in it or not. Company with positive working capital gets more value in its industry. As per videos we have seen (Link is given by professor) Working capital is required running the daily, weekly and monthly operations of a business. Working capital management brings lots of advantages to the firm and its profitability. I would like to give an example of Sanofi which has launched recently new flew short vaccine which is seasonal and hence they have planned launched in 1st week of November 2018. To make it in time they have arranged inventory and resources in their Framingham production centers and worked on 24*7 since the beginning of the 3rdquarter of the year 2018.

The Cash Conversion Cycle (CCC):

Cash conversion cycle is nothing, but the companies’ liquidity ration and it is very easy to calculate and beneficial to small business. It is highly recommended for any business to have a positive Cash Conversion Cycle ration.  Formula for calculating Cash Conversion Cycle (CCC) = DIO + DSO + DPO

Where DIO stands for Days inventory outstanding

DSO – Days sales outstanding

DPO – Days payable outstanding

Example:

Let’s take an example of a Chocolate manufacturing company where inventory should be used within 2-3 days and sales is high during festival season and they must prepare for high demand during Halloween to New year period. Consider they are investing $ 15 in inventory for 1 box of chocolate and selling it at the price of $ 30. The business has a cash conversion cycle of 10 days it means for those 10 days they have lost $ 15 to purchase inventory and lost $ 30 in sales. If we consider the pick period for which company is ready with chocolate and selling minimum 8 boxes a day will have a very high cash conversion cycle only for 1 quarter of the year. They must plan their inventory and production to use this cash effectively to survive the whole year.

Cash Budget:

The cash budget is defined as the plan for the company to achieve its financial goals during a particular time frame. It is very helpful for small business to prepare its monthly or quarterly budget for higher returns.

Cash budget holds an important because it helps to evaluate income versus expenses.

Reference:

1.     Vaccines – Sanofi. (n.d.). Retrieved from https://www.sanofi.us/en/products-and-resources/vaccines/

2.     https://www.youtube.com/watch?v=maF024vY1es

3.     https://www.youtube.com/watch?v=iNm8sNDjDgs

4.     https://www.youtube.com/watch?v=HT0c22HF5hA

5.     (Investopedia, 2018) Cash Conversion Cyclehttp://www.investopedia.com/terms/c/cashconversioncycle.asp.

6.     Liquidity Measurement Ratios: Cash Conversion Cycle. (2018, March 20). Retrieved from https://www.investopedia.com/university/ratios/liquidity-measurement/ratio4.asp

7.     Cash Conversion Cycle | Analysis | Formula | Example. (n.d.). Retrieved fromhttps://www.myaccountingcourse.com/financial-ratios/cash-conversion-cycle

8.     (Investopedia, 2018) Cash Budget