Week 9 Discussion 1 ( Finance 101) Collapse Top of Form Total views: 61 (Your views: 1) "Working Capital" Please respond to the following: Analyze the ways in which businesses manage working capital....

Week 9
Discussion 1: Working Capital
SOLUTION 1:
Effective management of working capital is called as working capital management. Working
Capital Management is done with the help of two aspects namely ratio analysis and management
of individual parts of working capital. Ratio analysis helps in the identification of areas of focus
like cash management, inventory management, payable management and accounts receivable
management. The business can implement following steps in the management of working
capital.
1. Inventory shall be properly managed, recorded.
2. Proper record of all the expenses shall be maintained. This is significant so that proper
record of liabilities is maintained.
3. All the transactions and accounts receivable shall be properly managed.
4. A reserve of secure funds shall be maintained. These are funds set aside from budget to
meet unexpected expenses.
5. Working Capital Management is a continuous cycle. It requires systematic record of
tracking and updating working capital management plan.
Money Management is the greatest challenge faced by the small business. Having sufficient cash
to meet the bills is compulsory for any business. In order to overcome this problem, small
business must either be strongly capitalized or able to earn extra income to support cash reserves
when required.
SOLUTION 2:
In current assets, generally cash, accounts receivable and inventory is there. Easy
mismanagement is possible only in case of inventory because inventory is to be valued on lower
of market value or cost basis. Overvaluation or undervaluation of inventory will affect the
amount of working capital in the company. This mismanagement can be corrected by
management by following a single method of valuation for inventory. In fact inventory should be
valued at market value (i.e. their expected selling price). This will ensure consistent and
appropriate valuation of inventory and thus working capital will also be accurately calculated.
Discussion 2: Short Term Financing
SOLUTION 1:
The economic and other business environmental factors that will impact the availability of short-
term financing are yield curve of the economy, interest rate in economy, policies of apex bank
etc. The strict economic policies, more requirements of reserve funds etc. will...