Working Capital Management Worksheet
Concept Application of Concept in Scenario Citation of Concept in Reading Personal Experience in your Organization
Short-term financing plan:
Bank loan borrowing from the bank.
Stretching payable putting off paying its bills.
Due to the situation that Lawrence has put the company into, in which Lawrence had borrowed from the bank and deferred payment to Gartner by a week. Brealey, 2005, p. 852 In order to meet the liabilities of deferred tax payment and the company's payable obligation, my company has applied for a revolving credit line by our lender. So for the short-run, my company where I am working for has managed to make payment on time.
Financial budgeting:
Cash inflow.
Cash outflow.
The task imposed on the CFO of planning cash inflow and cash outflow to retain at least a minimum of $50,000 each week while keeping the loan burden to the least level required a careful financial budgeting. Brealey, 2005, p.849 At my company, a budget for expecting expenses associated with a particular property will be planned. Improvements on the property and projected cash inflow will be assessed in order to have the needed cash handy for the upcoming month.
Credit Management:
Accounts receivables.
Accounts payables.
Regarding the task required based on the scenario in the simulation, the CFO has to negotiate short-term payment and collection arrangements with its business partners for keeping the amount of cash the company needs to borrow as low as possible. Brealey, 2005, p.814 Property managers are told to collect rents from tenants as much as possible each month. To put forth this effort and encouraging them to really make the attempts, special bonus is paid out if a certain percentage on total rent for the property has been reached.
Working Capital Management Worksheet
Concept Application of Concept in Scenario Citation of Concept in Reading Personal Experience in your Organization
Cash:
Offering liquidity.
Being better prepared in case of cash shortage.
The requirement of retaining at least a minimum of $50,000 on cash applies to the concept that cash has more liquidity to offer.
Also having enough cash on hand increase the chance for the company to survive for unexpected event as illustrated in the scenario where additional liabilities were due because of poor packaging and handling about the shipped equipments.
Brealey, 2005, p.821 This concept can also be observed in the company where I am with. Besides the weekly check cut to meet our obligations, additional cash has been put aside by our controller. Once it has reached the set level, surplus will be distributed to other properties that have funding shortages for planned projects.
This borrowing is not shown specifically at the beginning when it took place. Therefore, the budget can not accurately forecast financing needs. If the outflows were clustered at the beginning of the month and collections were heaviest towards the end of the month, it would understate the funds needed. In order to correct inaccuracies Alpine Wear should make a daily budget for the actual cash control. Daily cash budgets are more essential as they make sure the company has the cash on hand and loans are satisfactory enough to meet actual, daily, cash needs, not
The annual budget is refreshed based on financial forecast, system initiatives, and priorities, and operating performance of individual units. The method of forecasting future performance is based on historical data from previous year to date actual results and adjusted for inflation. Senior executives with direct oversight for the department or other departments will attend all quarterly budget meetings. The finance department provides the NM a budget for her unit based from previous year’s data of patients’ volume. The budget includes expenses for salaries, benefits, medical supplies, other supplies, and services. The responsibility of the NM is to review it monthly to ensure that her unit is within the budget. Whenever the NM is over the budget on each predetermined expenses, she will need to write a plan of actions on how to correct the
Financial executives in the healthcare industry rely heavily on cash budgets to help facilitate in the forecasting of cash flows and decision making on any additional financing that may be needed (Cleverley, Cleverley, & Song, 2012). Of course the budgets are not a guarantee that the forecasted plans will go accordingly as they were planned, but with close monitoring, management will be able to make any adjustments as needed for business needs. Businesses can choose to utilize a fixed budget or decide to go with a rolling budget period. A fixed budget is more traditional annual forecast for most firms and a rolling budget differs from the traditional way in regards to its timeframe and more comprehensive analysis (Hill, 2016). The traditional
Having cash available when you need it is crucial but you also have to know how and when the cash flows in and out of your business. You just don't "know" these things. There are skills involved to measure, monitor, and manage cash.
It may require additional working capital (operating expenditure) to solve cash flow challenges; it may require the additional capital for a particular acquisition (capital expenditure) or it may require a one-off borrowing to avert a looming financial crisis .
Cash is needed to keep the business running on a continuous basis. So the organization should have sufficient cash to meet various requirement. The above graph is indicate that in 2011-12the cash is .039 crores but in 2012-13 it has increase to2.64 Crores & in 2012-13 it is increased to 2.39Crorse. in 2013-14, it is increased up to approx. 5.13% cash balance. So in 2010-11, the company has no problem for meeting its requirement as compare to 2011-12.
Therefore, one of the prime objectives of cash management is to meet the requirements of payments with the maintenance of sufficient cash.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
One of the most important steps in the capital budgeting cycle is working out if the benefits of investing large capital sums outweigh the costs of these investments. The range of methods that business organisations use can be categorised in one of two ways: traditional methods and discounted cash flow techniques.
Cash discounts: adequate working capital also enables concern to availed cash discount on the purchases and hence reduces cost.
An imperative concept for any business is to know how to best adjust their assets for growth. This concept is called working capital. Net working capital is the company’s current assets minus liabilities and gross working capital is the company’s total current assets (Investopedia, 2013e). Net working capital demonstrates a company’s ability to pay back short-term liabilities using their current assets. The necessary working capital depends on the size of the company, and a diminishing or too high amount can be an indicator that assets are not being used prudently or there is excess liability. With a solid working capital, a company can determine where they can grow and best take future risks. This all culminates in the concept of an operating cycle, or the time necessary to change assets into useful resources and then again into assets.
Maintaining a company’s financial assets is a daunting task. Cash management techniques and short-term financing provide accounting executives with the tools needed to survive the constant changes within the economy. The combination of these tools and the knowledge of the world economy will assist companies in maintaining current assets and facilitates growth.
Blocher et al (2013), added that at the end of an operating period, managers view the budget plan to interpret any variance between actual and budgeting expenditures and operating outcomes. Under certain circumstances, a firm uses a budget plan, to ensure accurate spending, monitoring costs, and to analyze a subunit’s accomplishment. For example, the government use these tactics when a fiscal year budget has not been approved; which is known as a continued resolution. The lawmakers allocate a portion of funds to sub-agencies in order to remain operational. However, the budget plan allows lawmakers to monitor costs, planning, spending and the sub-agency’s goals for accomplishments.
A financial plan is a plan that focuses on the long term goals; it is the continuous process of forecasting and deciding how much to invest in order to meet the strategic goals and objectives needed according to the funds at the business. The objectives of a financial plan is to ensure that the finds are available whenever required and that firm does not raise any unnecessarily funds. Whereas, a budget can be defined as a plan for the short term. It is a plan only and not a forecast. They are usually prepared for one year or less period. A budget can
Company policy requires the cash to be received before or after rendering a service. Due to some business reasons, the management has been extending credit to clients contrary to the guidelines.