HSM340

Cash and Working

Capital
Week 6 Assignment
DeVry University
Professor Dr. Craig Nathanson
HSM 340
Kerri Sanders

The paper goes over the term Float, the four general phases of the working
capital cycle, the three primary sources of short-term funds, and the areas
(options) in how an organization idles cash on short-term investment and their
characteristics.

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Week 6 Assignment

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In the world of give and take there are areas in which people have to be mindful about how
to obtain a free dollar when available and how to invest their cash and working capital. The
traditional way to go about obtaining that dollar is through investments, using these three
primary methods of short-term funding,(3 primary sources), and understanding how these areas
can affect the outcome of the investments, by understanding the phases in which the working
capital takes.
The cycle in which working capital is ran can be understood by knowing the difference
between current assets, (cash and investments, accounts receivable, inventories and other current
assets) and current liabilities, (accounts payable, accrued salaries and wages, accrued expenses,
notes payable and current standing on long-term debts) .
There are certain cycles in which working capital runs, that is by Cash (funds available),
Creditors (accounts payable), Inventory, and Debtors. Knowing where the money is going or
coming in from will better help understand the complete cycle in which there are four major
activities that take effect in the overall planning of working capital investing, purchasing of
resources, production/sale of service, billing and collection. Purchasing of resources, relates to
the acquisition of supplies and labor, production in sale, in regards to the healthcare industry.
When there is surplus cash, meaning money that is in excess of the minimum overhead, the
cash can be invested so that the money is not just a sitting duck waiting to be taxed over and
over, but so it can make interest and be accessible for later projects. Short-term funding is
typically an investment that has a maturity date of no more than a year, between two 3-month
cycles or 6 month cycles. Short-term funding is preferred with healthcare firms because of the

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financial needs that they must have ready if anything breaks or projects come up from within.
Short-term funding maximizes the potential yield to the firm.
Short-term funding is found in investing in money markets, U.S. Treasury bill, negotiable
certificates of deposit, and commercial paper, maturities for money-market investments can
range from 1 day to 1 year and the securities usually serve two roles, liquidity and a temporary
investment of surplus fund earnings. When you are going to invest there are five investment
strategies that need to be implemented in the decision making, price stability, safety of principal,
marketability, maturity, and yield, that the investment will bring.
Short-term loans are typically given out by commercial banks but there are several other
common methods offered. A Single-payment loan is the simplest credit method used, where the
borrower receives the full value of the loan when the loan is originated. Single-payment loans
also offer the ability to add-on or underwrite a discount arrangement. In the discount
arrangement the interest is computed and deducted from the face value of the note and with an
add-on note the interest is added to the final payment of the loan.
Lines of credit allows for a borrower to borrow up to a set specific time limit and not be
defined within that time period. There are two types of lines of credit, committed or
uncommitted, and committed typically requires a commitment fee.
Working capital and the ability to manage it involve many decisions that have an overall
impact on the budget of the company and how the cash flow will affect the firm. The best way to
evaluate your investment choices is to go with what will float (billing, collection, transit and
disbursement) and bring in the most amount of return within the preferred time frame and has the
least impact on the performance of the business.

Cash and Working Capital

Week 6 Assignment

Reference
Essentials of Health Care Finance, 7th Edition

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