文档介绍：Chapter 8 Overview of Working Capital Management
Chapter 8
Overview of Working Capital Management
Overview of Working Capital Management
Working Capital Concepts
Working Capital Issues
Financing Current Assets: Short-Term and Long-Term Mix
Combining Liability Structure and Current Asset Decisions
Working Capital Concepts
Net Working Capital
Current Assets - Current Liabilities1>.
Gross Working Capital
The firm’s investment in current assets.
Working Capital Management
The administration of the firm’s current assets and the financing needed to support current assets.
Significance of Working Capital Management
In a typical manufacturing firm, current assets exceed one-half of total assets.
Excessive levels can result in a substandard Return on Investment (ROI).
Current liabilities are the principal source of external financing for small firms.
Requires continuous, day-to-day managerial supervision.
Working capital management affects pany’s risk, return, and share price.
Working Capital Issues
Assumptions
50,000 maximum units of production
Continuous production
Three different policies for current asset levels are possible
Optimal Amount (Level) of Current Assets
0 25,000 50,000
OUTPUT (units)
ASSET LEVEL ($)
Current Assets
Policy C
Policy A
Policy B
Impact on Liquidity
Liquidity Analysis
Policy Liquidity
A High
B Average
C Low
Greater current asset levels generate more liquidity all other factors held constant.
Optimal Amount (Level) of Current Assets
0 25,000 50,000
OUTPUT (units)
ASSET LEVEL ($)
Current Assets
Policy C
Policy A
Policy B
Impact on Expected Profitability
Return on Investment =
Net Profit
Total Assets
Let Current Assets = (Cash + Rec. + Inv.)
Return on Investment =
Net Profit
Current + Fixed Assets
Optimal Amount (Level) of Current Assets
0 25,000 50,000
OUTPUT (units)
ASSET LEVEL ($)
Current Assets
Policy C
Policy A
Policy B
Impact on Expected Profitability
Profitability Analysis
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