文档介绍：Corporate Finance-Chapter 8-11 Working Capital Management
CHAPTER 8-11
Working Capital Management
Corporate Finance
Gross working capital:
Total current assets3>.
Net working capital:
Current assets - Current liabilities.
Net operating working capital (NOWC):
Operating CA – Operating CL
=(Cash + Inv. + A/R) –(Accruals + A/P)
Basic Definitions
Working capital management:
Includes both establishing working capital policy and then the day-to-day control of cash, inventories, receivables, accruals, and accounts payable.
Working capital policy:
The level of each current asset.
How current assets are financed.
Advantages of short-term debt vs. long-term debt
Low cost-- yield curve usually slopes upward.
Can get funds relatively quickly.
Can repay without penalty.
Disadvantages of short-term debt vs. long-term debt
Higher risk. The required es quicker, and pany may have trouble rolling over loans.
Working Capital Financing Policies
How current assets are financed
Moderate: Match the maturity of the assets with the maturity of the financing.
Aggressive: Use short-term financing to finance permanent assets.
Conservative: Use permanent capital for permanent assets and temporary assets.
Different Approaches to Financing
Aggressive Approach
Finance all temporary current assets, permanent current
assets, and some fixed assets with ST debt. LT financing
is used for the remaining fixed assets.
Higher risk, higher return
Conservative Approach
Finance all fixed assets, permanent current assets, and
some temporary with LT debt or equity. ST financing is used
for the remaining temp. current assets.
Lower risk, lower return
Moderate Approach (Maturity Matching)
Finance fixed assets and permanent current assets with LT
funds and temporary current assets with ST funds.
Time
Total Assets
Fixed
Assets
Assume ZERO Long-term Growth
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$5M
Variation in assets over time
Time
Total Assets
Fixed
Assets
Permanent
Current As