Principles of Finance · free preview
Working Capital and the Cash Conversion Cycle
Working capital is the short-term resource the operating cycle consumes, net working capital is current assets minus current liabilities, and managing the cash conversion cycle releases cash from inventory, collection, and payables timing.
1. Working capital defined
Working capital defined
2. The cash conversion cycle revisited
The cash conversion cycle revisited
3. Trade credit, the invisible engine
Trade credit, the invisible engine
4. Managing the gap
Managing the gap
5. Net working capital
A firm holds 400,000 dollars of current assets and 250,000 of current liabilities. What is its net working capital?
6. The optimization goal
What is the goal of working capital management?
7. The cycle's three levers
Which three timings make up the cash conversion cycle?
8. Ten days' release
A firm shortens its cash conversion cycle by ten days on 5,000,000 dollars of annual cost of goods sold. Roughly how much cash is permanently freed?
9. Trade credit's invisibility
Why is trade credit called the invisible engine of working capital?
10. Funding the permanent gap
According to the maturity matching principle, how should the permanent part of working capital be funded?
11. The net figure's name
What two-word term names current assets minus current liabilities? Answer in lowercase.
12. The supplier financing's name
What two-word term names the financing suppliers extend through the timing of payment terms? Answer in lowercase.
13. The discount terms' notation
What terms, written with a percent and two numbers separated by slashes and net, offer a discount for early payment? Answer in the standard notation.
14. The freed cash's destination
Cash freed by cycle compression joins which surplus from the statements module? Answer with three words.
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