Podcast
Questions and Answers
What is one of the major uses of cash within a company?
What is one of the major uses of cash within a company?
Why is inventory considered a dangerous component of working capital?
Why is inventory considered a dangerous component of working capital?
What can spark a rapid increase in the amount of working capital?
What can spark a rapid increase in the amount of working capital?
How should the treasurer monitor components of working capital?
How should the treasurer monitor components of working capital?
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What should the treasurer do if a company's investment in working capital appears to be disproportionately high?
What should the treasurer do if a company's investment in working capital appears to be disproportionately high?
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Why is it important for the treasurer to be aware of internal policies and controls related to working capital?
Why is it important for the treasurer to be aware of internal policies and controls related to working capital?
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What can a well-managed tightening of credit policy provide in the short term?
What can a well-managed tightening of credit policy provide in the short term?
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Study Notes
Working Capital
- One of the largest uses of cash within a company is its working capital
- The treasurer does not have direct control over many aspects of working capital, but should be aware of internal policies, controls, and systems that influence it
Importance of Credit Policy
- A company's credit policy is crucial, as a loosened credit policy can rapidly increase working capital
- Conversely, a well-managed tightening of credit policy can provide needed cash in the short term
Inventory Management
- Inventory is the most dangerous component of working capital as it can build rapidly unless controlled
- Inventory can be difficult to convert back into cash
Monitoring Working Capital
- The treasurer should monitor working capital components on a trend line, comparing them to revenue levels and industry benchmarks
- If working capital investment appears disproportionately high, the treasurer should bring it to senior management's attention and recommend ways to reduce the investment
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Description
Learn about the importance of working capital within a company and how it is influenced by internal policies, controls, and systems. Understand the role of a company's credit policy in shaping working capital and how it can impact cash flow.
