An essential financial issue that is routinely overlooked is working capital. This mix of short-term assets and liabilities can absorb a remarkable amount of funding without management even realizing what is going on. Working Capital Management discusses how to reduce the adverse funding effects caused by working capital, including specific recommendations on how to manage cash, receivables, inventory, and payables. The course also addresses the operational characteristics that will allow a business to function with zero working capital and characteristics of different types of asset-based lending.
Upon successful completion of this course, participants will be able to:
- Recognize the conditions that can lead to zero working capital.
- Identify the proper type of financing to be used for different working capital conditions.
- Note the sources of information used for the development of a cash forecast.
- Recognize the benefits of cash concentration and the types of available cash sweeps.
- State the characteristics of the different types of short-term investments.
- Note how the receivables investment will change in conjunction with differences in payment terms granted.
- Identify the possible contents of a credit rating system and how the scoring is organized.
- Recognize the circumstances under which software can be used to enhance collection activities.
- Note the structure of the measurements used to monitor accounts receivable.
- State the activities that can be used to reduce the overall investment in inventory.
- Recognize the activities required to ensure the success of a produce to order system.
- Note the behavioral effects of using inventory measurements.
- Identify the different types of float.
- State the different types of signals that may be sent to a supplier as part of the process of obtaining more credit.
- Note the operational requirements demanded by lenders for asset-based lending arrangements.
- Recognize the contents of a borrowing base calculation.
Table of Contents
Chapter 1 – Working Capital Concepts
The Nature of Working Capital
The Importance of Working Capital
The Optimum Amount of Working Capital
Zero Working Capital
Working Capital for a Growing Business
Working Capital for a Declining Business
Responsibility for Working Capital
Chapter 1 – Review Questions
Chapter 2 – Cash and Investment Management
Reasons to Hold Cash
The Cash Forecast
The Short-Term Cash Forecast
The Medium-Term Cash Forecast
The Need for Cash Concentration
The Zero Balance Account
Multiple Sweep Arrangements
Notional Pooling Problems
Notional Pooling Costs
Hybrid Pooling Solutions
Cash Concentration Best Practices
Cash Concentration Alternatives
Types of Short-Term Investments
Money Market Funds
Certificates of Deposit
U.S. Government Debt Instruments
Chapter 2 – Review Questions
Chapter 3 – Receivables Management
The Receivables Component of Working Capital
Credit Exposure Risk
Internal Credit Rating System
Third Party Credit Ratings
Portfolio Approach to Risk
Cross-Selling Credit Exposure Risk
Early Payment Discounts
Billing Impact on Working Capital
Other Cash Acceleration Techniques
Days Sales Outstanding
Bad Debt Percentage
Receivables Aging Report
Chapter 3 – Review Questions
Chapter 4 – Inventory Management
The Inventory Conundrum
Effective Inventory Management
Reduce Product Options
Reduce Inventory Reserves
Compress the Process
Prevent Obsolete Inventory
Engage in Rapid Disposition
Improve Inventory Records
Produce to Order (Pull) System
The Focus of Inventory Analysis
Responsibility for Inventory Reduction
Inventory Turnover Ratio
Raw Materials Turnover
Finished Goods Turnover
Returnable Inventory Valuation
Opportunity Cost of Excess Inventory
Chapter 4 – Review Questions
Chapter 5 – Payables Management
Effective Payables Management
Early Payment Discounts
Payables for Distressed Businesses
Chapter 5 – Review Questions
Chapter 6 – Asset-Based Lending
The Line of Credit
The Borrowing Base
Inventory as Collateral
Chapter 6 – Review Questions
Review Question Answers and Rationales
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