Aspects and Elements Related to Working Capital Management

Financial Management: “The process for and the analysis of making financial decisions in the business context.” (Cornett, Adair, & Nofsinger, 2016, p. 5).

CitedBrigham, Eugene F. , and Phillip R. Daves. Intermediate Financial Management. 8th ed. Mason: Thomson South-Western, 2004.

This solutions manual provides the answers to all the review questions and end-of-chapter problems in Financial Management: Principles and Practice, by Timothy Gallagher. The answers and the steps taken to obtain the answers are shown. Readers are reminded that in finance there is often more than one answer to a question or to a problem, depending on one‘s viewpoint and assumptions. One answer is

The cash account is a balance sheet account and is in the liquid funds accounts It is important for the system be able to discriminate between balance sheet accounts (real accounts) and income statement accounts (nominal accounts). This classification is important for closing purposes and also for developing the financial statements. The account classification (liquid funds) is also important for the system when developing the financial statements.

* Precautionary Motive - cash is a relatively safe investment.  Cash investments rarely lose value (as can stocks or bonds) and are therefore held for safety reasons in a balanced portfolio.

* We want to maintain a safe cash balance in order to meet short term obligations.

Working capital is the key to a successful business. It is like their blood flow and the manager’s job is to help keep it flowing. Under the Generally Accepted Accounting Principles working capital is simply the difference between a company’s Current Assets, which are cash, inventory, accounts receivable and prepaid items, and Current Liabilities, accounts payable and accrued expenses.

BIBLIOGRAPHYBrigham, Eugene F., and Joel F. Houston. Fundamentals of Financial Management., "Chapter 7 spreadsheet module".

1. Brigham, Eugene F. and Michael C. Ehrhardt. Financial Management Theory and Practice, 13th Edition, Thompson South-Western, ISBN-13# 978-14390-7809-9, ISBN-10#1-4390-7809-2

Financial Management Introduction = == == == ==

Working capital ratio, the working capital ratio, also called the current ratio. Is a liquidity ratio that measures a firm 's ability to pay off its current liabilities. For example, financial obligation, with their current assets. Working capital is calculated

This measures the adequacy of the company’s working capital position and is as important as measuring the company’s ability to manage its two important assets, inventory and accounts receivable, efficiently.

Working capital is the excess of a company’s current assets over its current liabilities. Financially healthy firms have positive working capitals.

Furthermore, if an organisation does not have enough cash resources in order to settle its current liabilities, this will highlight great inefficiency with stock turnover not being sold. A good company such as Sainsbury’s we see is healthy because revenue is recognised from inventories sold – this revenue allows cash to flow in order to pay for short term and long-term liabilities. It is evident that there are insufficient cash flowing into the company from investing activities and financing activities, which are shown by the brackets.

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.