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The need for working capital management vary from industry to industry, and they can even vary among similar companies. This is due to several factors, including differences in collection and payment policies, the timing of asset purchases, the likelihood of a company writing off some of its past-due accounts receivable, and in some instances, capital-raising efforts a company is undertaking.
Proper management of working capital is essential to a company’s fundamental financial health and operational success as a business. Critically analyse this statement with practical example.
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- Consider the dilemma you might someday face if you are the chief financial officer of a company that is struggling to maintain a positive cash flow, despite the fact that the company is reporting a substantial positive net income. Maybe the problem is so severe that there is often insufficient cash to pay ordinary business expenses, like utilities, salaries, and payments to suppliers. Assume that you have been asked to communicate to your board of directors about your companys year, in retrospect, as well as your vision for the companys future. Write a memo that expresses your insights about past experience and present prospects for the company. Note that the challenge of the assignment is to keep your integrity intact, while putting a positive spin on the situation, as much as is reasonably possible. How can you envision the situation turning into a success story?The need for working capital management vary from industry to industry, and they can even vary amongsimilar companies. This is due to several factors, including differences in collection and payment policies, the timing of asset purchases, the likelihood of acompany writing off some of its past-due accountsreceivable, and in some instances, capital-raising effortsa company is undertaking. Proper management ofworking capital is essential to a company’sfundamentalfinancial health and operational success as a business.Critically analyses this statement with practical example?Which of the following statements is true? a. Determining how day-to-day financial matters should be managed is not a function of financial managers. B. The goal of the firm is to maximize market share. C. Working capital management refers to identifying productive long-term assets the firm could acquire to maximize net benefits. D. Capital budgeting refers to identifying productive long-term assets the firm could acquire to maximize net benefits.
- Wellson Ltd. has current assets, including cash, accounts receivable, and inventory, and current liabilities, including accounts payable and short-term notes payable. Wellson manages its working capital by focusing on management of current assets. Wellson has effective systems in place for granting credit to customers, collecting overdue accounts, and managing inventory. (a) Discuss why management of working capital is important for effective business operations. (b) Discuss how Wellson can improve its management of working capitalBased on the Massy Group, an investment holding company, answer the following questions. Provide a detail explanation and examples to the answers. Assess the company’s working capital position by analyzing its current assets and liabilities using common methods and measures and perform a comparison/difference to that of another company. Evaluate the efficiency of the company’s working capital management strategies, including inventory management, accounts receivable, and accounts payable and perform a comparison/difference to that of another company. Based on the assessment and evaluation above, provide ten recommendations for improving the company’s working capital management practices, providing examples for each one.Which of the following statements about financial statements is incorrect? They are the primary responsibility of the management of the They show the results of the stewardship of the management for the resources entrusted to it by the capital They are prepared at least annually and are directed to both the common and specific information needs of a wide range of statement The provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic
- Which question reflects a decision regarding working capital management? Select one: a. Should the company issue new shares or borrow money? b. Should the company replace its older equipment with a new equipment in order to increase sales? c. What is the maximum amount of accounts receivable that the company should have at a particular time? d. How much should the company borrow to buy a new machine?Select all that is true about the role of financial managers and the types of financial decisions they make. a. Capital Budgeting function involves planning and determining the firm’s short term investments. b. Determining the appropriate level of inventory is a working capital management function. c. The duties of the financial manager includes determining the capital structure and which projects the firm should undertake. d. Capital structure describes the mix of short-term liabilities a firm uses to finance its short-term assets. e. The optimal financial management strategy of a financial manager is to reduce the overall risk level of the firm. f. Size and timing of cash flows is unimportant in a capital budgeting decision.In terms of managing working capital, management’s goal should be to: a. Increase the working capital cycle by as much as possible without affecting the efficiency of operations. b. None of the available options adequately describes management’s goal in terms of working capital management. c. Improve the return on assets by increasing the investment in working capital and related financing cost. d. Shorten the working capital cycle by as much as possible at all costs. e. Shorten the working capital cycle by as much as possible without affecting the efficiency of operations.
- Why is understanding the relationship between the cash conversion cycle (CCC) and net working capital important to the contemporary business executive? Explain ways in which executive decisions regarding the CCC and net working capital can affect a company both adversely and beneficially. Support your response with a specific example from the business world.Based on M&M with taxes and without taxes, how much time should a financial manager spend analyzing the capital structure of their firm?If an organization’s operations rely heavily on the specialized expertise of its management team, would you expect there to be a higher or a lower correspondence between the net assets recognized in the statement of financial position (balance sheet) and the total market value of the organization’s securities, relative to an organization that relies more on tangible assets (for example, commonly used plant and machinery) to generate its income?
