Foundations of Working Capital Management

Introduction

• Working capital management

1. The Operating Cycle

• Merchandising business
• Manufacturing business
• Service business

2. Cash Management

• The budgeting behind cash management
• Sales and cash collection forecast
• Expense and cash payment forecast
• Identifying and solving cash problems in advance

3. Managing Receivables

• Why do companies sell on credit?
• Credit sales bookkeeping, bad debts, and financing costs
• Case study: Should you sell on credit?
• Average collection period

4. Managing Inventory

• Why do companies have any inventory?
• Just-in-time inventory (JIT)
• Economic order quantity (EOQ) and safety stock
• Number of days of sales in inventory

5. Managing Accounts Payable

• Case study: Walmart's supplier credit
• The savings from using supplier credit
• The cost of using supplier credit
• Number of days of purchases in accounts payable

6. Computing the Length of the Operating Cycle

• Case study: Nike, Walmart, and McDonald’s
• Evaluate trends in the length of a company’s operating cycle
• The need for outside financing of working capital
• Obtaining short-term bank financing

Conclusion

• The importance of internal controls