Background on Working Capital

Current Assets Investment Policies

Current Assets Financing Policies

 Maturity Matching, or “Self-Liquidating,” Approach

 Aggressive Approach
 Conservative Approach
 Choosing Between the Approaches

The Cash Conversion Cycle

 Calculating the Targeted

 Calculating the CCC from Financial Statements

Some Real World Examples of the Cash Conversion Cycle

The Cash Budget

Cash and Marketable Securities

 Currency
 Demand Deposits
 Marketable Securities

Inventories

Accounts Receivable

 Credit Policy
 Setting and Implementing the Credit Policy
 Monitoring Accounts Receivable

Accounts Payable (Trade Credit)

A Difficult Balancing Act

Bank Loans

 Promissory Note
 Line of Credit
 Revolving Credit Agreement
 Costs of Bank Loans

Commercial Paper

Accruals (Accrued Liabilities)

Use of Security in Short-Term Financing