Contents
Introduction 2
Effectiveness of working capital management 3
Introduction. This is a report will be discussing about working capital management regarding the case study, and the risk-return and trade off involved in helping to manage the company’s capital within this case study. Working capital management would be discussing the effectiveness of this method being implemented in the case study, and how it has helped the business within the mentioned businesses in the report. Some of these effective methods are a working and healthy cash flow monitoring method. Talking about the benefit of having such a method in the working capital management system. Most of these methods are done by other companies and could be
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A fully functional working capital management should, be able to achieve a balance between maximizing return of the company’s assets and minimizing risks. Seeing as how managing a proper working capital is a problem in the case study and needs to be addressed seriously this report will be discussing the ways to do so, by first discussing its effectiveness. There are many effective benefits of working capital management, and using them properly will help the company thrive. The first method of being able to manage a proper working capital is having a good cash flow forecasting. Cash flow forecasting means the ability to monitor and predict the money trail and its growth within the company. In the case study it states that, the Indian companies have up to INR5.3 trillion (US$97 billion) in cash unnecessarily tied up in their working capital processes. This shows that they do not have a proper forecasting system. As the case study its self has suggested this, that by doing so it would solve problems such as credit blocks and proactive collection form …show more content…
Basically understanding the movement of the cash, and being aware of all the transactions that are being made whether it be via electronic means such as ATM’s and online banking or more physical means. To do so businesses usually use a treasury management system that helps with this, and stores all data concerning cash flows. It helps lessen the work load, chances of risks and is much cheaper to use that having the financials stored manually. This system goes well alongside the purchase to pay (P2P), this process will allow the company to increase its working capital, by centralizing this process. P2P is the process that will further locate hidden cash within the company more accurately. Thus, this will help financial managers obtain accurate financial information therefore making accurate financial decisions. This is a method that has been stated by Kyriba Corporation and is used by them as well, in their quest to gain a good capital working system. (Kyriba Corporation,
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
One must understand that the integral core of a company rests in its accounting and financial areas. The departments’ need employees with an advanced knowledge and skill set to ensure the payment of supplies and accounting on the expenditure is correctly recorded. If the accounting desk presents inaccurate spending calculations on behalf of the company, it could result in spending more than what has actually been earned; this could lead to the company not only being unable to increase in revenue, but also experience loss. It is imperative that the management of the financial department is well informed and able to make decisions by taking into account the usage of every coin stated in the expenditures, and also to know the amount of revenue the company is making so that we can plan on better strategies to improve the revenues (Lu, Madu, Kuei & Winokur, 1994).
Measuring the liquidity through the current ratio, with 2.74 in the year 2009,0.74 above the standard, with the decline in the following year meeting exactly the standard at 2% in the year 2010, and a steep decline in the year 2011-2012 as compared to its standard.Resulting in the decline in firm’s ability to meet its day-to-day operating expenses. The current liabilities from 2009 to 2012 have increased by 27.03 billion whereas the investments in current assets have increased just by 26.09 billion, which causes the decline in the current ratio. To cope up with this problem the company should invest more in current assets and should reduce its current liabilities.
The Statement of financial position is a very useful tool full of information showing the position of an entity. However within this sheet of information lies a lot of limitations and problems. This essay will pinpoint some of the limitations and problems within the balance sheet. These limitations include how the balance sheet does not reflect the true financial position of a business, it does not reflect assets that can’t be measured monetarily and it also has a huge amount of estimated values and not actual verified values so this causes some controversy within the entity and its true position on the market. As well as the problems within the balance sheet there also lies a lot of problems with what’s left out of the balance sheet.
It would help in tracking payment receivables, account payables, and ensure that the amount due for and by the Company are completed in time. Likewise, the payroll system allows the follow up, which would ensure that the money owed to the Company is paid within the time set. · Effective internal control system to safeguard the Company
Financial statements are a vital factor of any business organization; they show where a company’s money came from, where it went, and where it is now, according to Securities and Exchange Commission website (2008). In addition, four main financial statements consist of the balance sheet, income statement, cash flow statement, and statement of shareholders’ equity. These four financial statements will be evaluated from Nike Inc. and more in depth information will be included from information on the previous paper which will be link to the working capital strategies. Furthermore, a detail working capital recommendation to senior management will be included and the impact of Nike Inc. revenue increase of their working capital.
Thesis: Businesses deem financing necessary when they are just beginning, expanding, or recovering; Debt financing and equity financing have many advantages and disadvantages but also change the entire accounting method that is to be considered while running the business. Debt financing has both advantages and disadvantages. Debt financing is a business’ way to start up, expand, or recover by borrowing money from a person or company. The money borrowed has to be paid back along with the interest that was accrued during the length of time the loan was carried out. This option is great for company’s that do not want investors.
In order for a financial manager to be successful, all 3 of these areas of financial management must be executed properly. Working capital deals with a firm’s short term assets; capital budgeting is the process of planning and managing a firm’s long term investments; capital structure is the mixture of debt and equity maintained by a firm. All 3 of these areas entail different things as explained but together they make up financial management.
Filing information and documents (manually and using computerised databases) and being able to find them again when necessary. They must also ensure confidentiality of private and sensitive information.
Research on the Sources of Finance for a Business Firms sometimes need to raise finance for Working Capital and Capital Expenditure. Explain what each is and give examples. · Working Capital (or Revenue Expenditure) The working capital is made up of the current assets net of the current liabilities. It is vital to a business to have sufficient working capital to meet all its requirements. Many businesses have gone under, not because they were unprofitable, but because they suffered from shortages of working capital.
The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.
Managing an organization’s financial operation requires a good understanding of the economy and ways to maximize revenue. For an organization to operate on a daily basis, adequate cash flow is required. Poor cash management within an organization might make it hard for the organization to function because there may be shortage of cash in case of inconsistences in the market. In most companies, management is interested in the company 's cash inflows and outflows because these determines the availability of cash necessary to pay its financial obligations. Management also uses this information to determine problems with company’s liquidity, a project’s rate of return or value and the timeliness of cash flows into and out of projects (used as inputs
The inventory turnover is almost half compared to the industry average, although it managed to increase by 0.3 compared to 2002. The company needs to maintain a constant cost of goods sold and at the same time manage inventory more efficiently to maintain market competitiveness. The average collection period also increased slightly to 58 days, three days increase compared to 2002. The company needs to negotiate or persuade on efficient payment methods to customers to decrease the collection period down to industry average. The total asset turnover increased 0.1 to 1.6 but still failing to meet the industry standard of 2.0. Martin Manufacturing needs to boost sales while maintaining a constant asset value to meet or exceed industry standards.
Nowadays with the implementation of new emerging technologies, the way businesses keep this financial information has become computerised. At the moment businesses use computers with a computerised accounting system in order to perform many other new activities than what they were able to do in the past. Businesses can access financial information from different department in the organisation, access to the information through computers and find financial data very fast, being more efficient. (Beliss, 2013)
The financial management information system provides financial information to all financial managers within an organization including the chief financial officer. The chief financial officer analyzes historical and current financial activity, projects future financial needs, and monitors and controls the use of funds over time using the information developed by the MIS department.