39 Working Capital Management
Liquidity measures
Liquidity management
primary sources of liquidity
secondary sources of liquidity
working capital
liquidity ratios
turnover
cycle
accounts receivable management
inventory management
payable management
Short term funding
the risk of company's short-term investment
sources of short-term funding from banks
non-bank sources of short-term funding
respresent the most readily accessible resources available
may result in a change in the company's financial and operating positions
signaling a company's deteriorating financial health
providing liquidity at a high price
Current ratio
Quick ratio
Cash ratio
Receivable turnover
Inventory turnover
Payable turnover
Operating cycle
Cash conversion cycle
Cash management
Daily cash position
analyze its typical cash inflows and outflows by category and prepare forecasts
Calculating average days of A/R based on Receivable aging schedule
Make comparison with Historical trends & other firms
Calculating average days of inventory and turnover ratios
Make comparison
cost of trade credit
uninvested cash balances
Credit risk
Market risk
Liquidity risk
Foreign exchange risk
a borrower will default
the value of a portfolio will decrease due to the change in value of the market risk factors
a given security or asset cannot be traded quickly enough
unanticipated changes in the exchange rate
Lines of credit
for large corporations with limited reliability
uncommitted line of credit
Committed line of credit
bank charges a fee for making a commitment for short term lending, more reliable
a revolving line of credit
a commitment for longer term lending, more reliable than committed term lending
Pledge assets as collateral for bank borrowings
Banker's acceptances
get guarantee from the buyer's bank
Factoring
sale A/R to bank
Non-bank finance company
small weak borrowers with weak credits
Commercial paper
Large coporations and the rate for short-term fund is lowest