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Financial management focuses on finance manager performing various tasks as Budgeting, Financial Forecasting, Cash Management, Credit Administration, Investment Analysis, Funds Management, etc. which help in the process of decision making.
Working capital in simple terms means the amount of funds that a company requires for financing its day-to-day operations. Finance manager Should develop sound techniques of managing current assets.
Financial management includes management of assets and liabilities in the long run and the short run. The management of fixed and current assets, however, differs in three important ways: Firstly, in managing fixed assets, time is very important; consequently discounting and compounding aspects of time element play an important role in capital budgeting and a minor one in the management of current assets. Secondly, the large holdings of current assets, especially cash, strengthen the firms liquidity position but it also reduces its overall profitability. Thirdly, the level of fixed as well as current assets depends upon the expected sales, but it is only the current assets, which can be adjusted with sales fluctuation in the short run. Here, we will be focusing mainly on the management of current assets and current liabilities. Management of current assets needs to seek an answer to the following question: 1. Why should you invest in current assets? 2. How much should be invested in each type of current assets? 3. What should be the proportion of short term and long-term funds to finance the current assets? 4. What sources of funds should be used to finance current assets?
4. Tendencies of accumulating inventories to make speculative profits grow. This may tend to make the dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.
4) Bills Payable
Operating cycle = R + W + F + D C
R = Raw material storage period W = Work in progress holding period F = Finished goods storage period D = Debtor collection period C = Credit period availed
If you .......
Collect receivables (debtors) faster
Then ......
You release cash from the cycle
Cash (funds available) Creditors (accounts payable) Inventory (stock on hand) Debtors (accounts payable)
The key to successful cash management is to be in control of each step in the cycle. If you can quickly convert your trading operations into available cash, you will be increasing the liquidity in your business and will be less reliant on cash from customers, extended terms from suppliers, overdrafts, and loans.
Information
1.) Proportion of Fixed Asset and Current Assets