The chaos in the financial markets today has changed the face of cash advances, management and how firms should evaluate this. These financial changes require firms to seek out new sources for working capital and commercial loans. Firms, in today’s financial markets, will need to analyze their capital management structure and abilities to execute effective policies for future growth. New and innovative ways to find money through accounts receivable financing or asset-based lending is an option. Firms must analyze their options carefully and exercise cost effective measures to maintain a balanced capital management system.
Working Capital Strategies Research Introduction The purpose of this paper is to discuss the concepts of working capital management as relating to corporate strategies that affect liquidity, cash flows, cash conversion cycles, and profitability. Various examples of benchmark companies will be used to demonstrate the application of financial decisions that are designed to control cash movement and resolve cash problems, and will provide models for the course scenario company (Lawrence Sports) in dealing with a temporary but significant financial crisis.
Topics will cover the importance of budgeting, explore the significant aspects of a cash flow analysis, identify best practice management within a sample industry, and consider the risks,
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Lawrence’s forthcoming financial decision will involve protecting not only current assets, but also future business that hinges on customer relationship. Alternative strategies will present differing outcomes. The process of benchmarking as it appears in this paper can assist Lawrence in defining the scope of the problem, and in determining the strategy with the greatest likelihood of accomplishing company’s goals. By providing an avenue for collecting data, analyzing findings, and comparing the results of applied strategies, this paper can help Lawrence tailor a plan of action for solving the company’s cash flow problem.
Select working capital strategies to prepare for long-term opportunities – Valeriu Alin Bargan Many business organizations like General Electric and Lawrence Sports are looking to identify new opportunities in order to differentiate among the competitors and to attain an effective success by offering unique product and using the new technologies. Business organizations that put in application the best business practices are going beyond this by achieving competitive advantage through efficient and viable internal business processes.
The cash management function can differ noticeably from one organization to another, creating difficulties on comparison benchmarking of how business organizations collect, pay and invest their cash. Successful business organization most to the time make the efforts to have an effective cash management function by including viable business practices to lower bank charges, to cut the costs of external financing, to overcome any possible risks and effectively manage the short and long-term liquidity.
The final goal of most business organizations like General Electric and Lawrence Sports in managing the working capital is to cut the costs and free up cash resources for growth and investment business purposes. These business organizations should take the advantage of the multiple opportunities in order to consolidate the cash flow and cash budget, to decrease the working capital liabilities, to set up quick payments and to negotiate advantageous payment terms with suppliers.
In addition, business organization need to create an effective accountability in accounts receivable and payable, to grow the collections personnel’s value and collect better financial information to sustain the strategic decision process for the long-term opportunities (Murray, 2006). Working capital management has, as main characteristic complexity and even with this complexity, the working capital management system has started to be used by many employees for different business processes within a business organization.
This process is a balancing act and business organizations should carefully manage it to assure that the organizations effectively use their working capital and detain specific cash resources, which are needed to allocate funds product development, production and delivery. Working capital management has the capability to make an impact on the organization’s bottom line. Working capital of a business organization is defined by the current assets minus the current liabilities.
Working capital managers are the persons in charge to establish capital strategies in order to keep a proper balance between short-term debts and assets. On the other hand, the finance managers need to identify the long-term debt opportunities. The multiple working capital strategies within a business organization need to keep a proper balance between liabilities and assets. Because of this business organization are confronted implications of these practices.
The working capital managers should establish when and where to place specific standards of allowances and payments and allowances for particular customers and when to set up a schedule for debt releases and payments. The most essential factor that a financial manager should take into consideration when he is taking financial decision is to take into consideration the guidelines of the business organization and investors. Explain the purpose of cash budgeting – Valeriu Alin Bargan “Cash Budget is an estimation of the cash inflows and outflows for a business,” (Dictionary.
com, 2009, p. 1). The purpose why any business organization like Regions Bank wants to have an efficient and viable cash budgeting process is that the organization desires to establish how much credit that organization will be capable to offer to any potential customer. “A cash budget is extremely important, especially for small businesses because it allows a company to determine how much credit can be extended to customers before they begin to have liquidity problems,” (Dictionary.com, 2009, p. 1).
Regions Bank’s efficient cash budgeting process offered to the bank the opportunity be the first bank that furnish to the consumers the direct access to they banking accounts via a computerized telephone network. In addition, a proper and viable cash budgeting process has furnished to the Regions Bank the opportunity to extend the business by acquiring interstate banks, which helped Regions Bank to attain one of the top 10 positions in the banking industry.
Lawrence Sports could follow the Regions Bank example in managing efficiently the cash budgeting process – how much cash goes in and out. In the case of Lawrence Sports, some of the cash inflows contain the collection of outstanding receivables from its business collaborators. Some of the cash outflows contain the accounts payable and operating expenses. The Chief Financial Advisor (CFA) is the person in charge to balance the sales with collections or cash inflows – accounts receivables – purchases with cash outflows – accounts payables – payments.
“Cash is universally acknowledged to be one of the most liquid of assets, one that affords an enterprise the greatest degree of liquidity and flexibility of choice,” (Bernstein & Maksy, 1985, p. 74). If Lawrence Sports will maintain a positive cash balance, this will offer the possibility to this organization to detain the necessary funds in the case of an emergency as well as unplanned cash outflow (University of Phoenix, 2008). Perform cash flow analysis – Gina Robinson “…
as important as a company’s profitability, is its liquidity– whether or not it is taking in enough money to meet its obligations,” (Jonathon Moreland, 1995, p. 1). A cash flow statement is highly significant to the understanding of a company’s financial health because the net income is adjusted for non-cash items and is therefore, an indication of the amount of cash which is available to be used for meeting obligations. The cash flow statement provides information as to the source of cash and explains where the money is spent during a specific period, and is comprised of three sections:
1) operations …shows the cash movement that results from product-sales or services, and includes accounts receivables, depreciation, inventory, and accounts payables, 2)investing… includes cash activities that are involved with equipment, assets, or investments, and 3) financing …. shows movements resulting from activities related to debts, loans, and dividends. Entries in each of the three sections are shown as impacting the firm’s cash balance by either increasing the amount of available cash with inflows or diminishing cash holdings by paying bills and meeting obligations.
Investor evaluation is not the only benefit to the story, which unfolds on the lines of a cash flow statement. While the picture of a firm’s cash flow is a general indication of the company’s performance or level of efficiency in cash management, the statement is also a means by which managers can pinpoint problems in liquidity (i. e. cash conversion cycle), make projections (i. e. rate of return and NVP), and guide the selection of strategies for maintaining the firm’s solvency.