1. Working Capital Management
Current assets
Cash
A/R
Inventory
Current liabilities
Working Capital Management

2. Working Capital Management
Cash
Minimize cash
Returns available on cash
Business accounts
Need for cash
Pay bills: McDonalds versus General Motors
Take advantage of opportunities
Lines of credit
Working Capital Management

3. Working Capital Management
Cash collection
Why checks?
Lockbox locations?
Automated payments
Working Capital Management

4. Working Capital Management
Cash disbursements
Zero balance accounts
Transfer to subaccount such as payroll
Overdraft protection
Working Capital Management

5. Working Capital Management
Investing cash: Apple: $147 billion
Typically in short-term securities
Maturity < 90 days
No default risk
Liquid
Taxable vs. tax-exempt
Working Capital Management

6. Working Capital Management
Types of short-term securities
Money market accounts
Banks
Mutual funds
T-bills
Muni short-term securities
Commercial paper: unsecured
CDs
Adjustable preferred stock: dividend exclusion (70%)
Working Capital Management

7. Working Capital Management
Credit sales
Terms of sale
5/30, n/90
Length of credit period
Time to turnover product
Competition
Credit risk
Effective return
Working Capital Management

8. Working Capital Management
Credit policy
Steak N Shake: why formerly no credit cards?
Benefits of selling on credit
Increased sales
Cost of selling on credit
Cost of A/R
Bad debt
Managing credit department
Credit cards?
Working Capital Management

9. Working Capital Management
Credit analysis
Scoring
Experian:
Factors
Pay bills on time: (35%) recent late payments versus prior late payments
Amount you owe (30%)
-0-
Close to credit limit
Length of credit history (15%)
New credit (10%)
Refi versus new car loan
Hard versus soft inquiries
Type of debt
Home mortgage versus student loans/credit card debt
Working Capital Management

10. Working Capital Management
Credit analysis
Character: willingness to pay
Capacity: ability to pay
Aging schedule on page 527
Capital: assets
Collateral: pledged assets
Conditions: business conditions
Working Capital Management

11. Working Capital Management
Inventory
Not too much…
Storage
Insurance
Obsolescence
Theft
Cost of carrying inventory
Working Capital Management

12. Working Capital Management
Inventory
Not too little:
Lost sales
Restocking
Just right
EOQ: Square root of (2TxF)/CC
Impact of change in fixed costs; carrying costs
Safety stock
Reorder point
MRP: what do I need to build a car?
JIT: who holds the inventory?
Working Capital Management