Working Capital Management
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Questions and Answers

What is the primary goal of cash flow optimization?

  • To maximize profitability
  • To reduce inventory levels
  • To increase creditworthiness
  • To maintain liquidity and profitability (correct)
  • What does the inventory turnover ratio measure?

  • The average time to sell and replace inventory
  • The number of times inventory is sold and replaced within a period (correct)
  • The average inventory level
  • The total cost of goods sold
  • What is a benefit of effective accounts payable management?

  • Increased profitability
  • Maintained relationships with suppliers (correct)
  • Improved creditworthiness
  • Reduced cash outflows
  • What is a type of short-term financing?

    <p>Invoice financing</p> Signup and view all the answers

    Why is cash forecasting and budgeting important in cash flow optimization?

    <p>To ensure timely payment of bills and expenses</p> Signup and view all the answers

    What is a consideration when choosing a short-term financing option?

    <p>Interest rates and fees</p> Signup and view all the answers

    Study Notes

    Working Capital

    Cash Flow Optimization

    • Managing cash inflows and outflows to maintain liquidity and profitability
    • Importance:
      • Ensures timely payment of bills and expenses
      • Maintains creditworthiness
      • Supports business growth and expansion
    • Strategies:
      • Cash forecasting and budgeting
      • Accelerating accounts receivable collection
      • Managing inventory levels and reducing stockouts
      • Negotiating payment terms with suppliers

    Inventory Turnover

    • Measures the number of times inventory is sold and replaced within a period
    • Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory
    • Importance:
      • Indicates efficiency in inventory management
      • Affects cash flow and working capital requirements
      • Influences profitability and competitiveness
    • Strategies:
      • Implementing just-in-time (JIT) inventory systems
      • Conducting regular inventory audits and optimization
      • Improving supply chain management and logistics

    Accounts Payable Management

    • Managing payments to suppliers and creditors
    • Importance:
      • Maintains relationships with suppliers
      • Manages cash outflows and working capital
      • Affects creditworthiness and financial health
    • Strategies:
      • Negotiating payment terms and discounts
      • Implementing efficient payment processing systems
      • Prioritizing and scheduling payments

    Short-term Financing

    • Financing options for short-term working capital needs
    • Types:
      • Bank overdrafts
      • Short-term loans
      • Invoice financing
      • Factoring
    • Importance:
      • Meets temporary cash flow gaps
      • Supports seasonal or fluctuating demand
      • Supplements core financing sources
    • Considerations:
      • Interest rates and fees
      • Repayment terms and schedules
      • Creditworthiness and eligibility

    Cash Flow Optimization

    • Managing cash inflows and outflows is crucial to maintain liquidity and profitability
    • Importance of cash flow optimization: ensures timely payment of bills and expenses, maintains creditworthiness, and supports business growth and expansion
    • Strategies for cash flow optimization:
    • Cash forecasting and budgeting
    • Accelerating accounts receivable collection
    • Managing inventory levels and reducing stockouts
    • Negotiating payment terms with suppliers

    Inventory Turnover

    • Inventory turnover measures the number of times inventory is sold and replaced within a period
    • Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory
    • Importance of inventory turnover: indicates efficiency in inventory management, affects cash flow and working capital requirements, and influences profitability and competitiveness
    • Strategies to improve inventory turnover:
    • Implementing just-in-time (JIT) inventory systems
    • Conducting regular inventory audits and optimization
    • Improving supply chain management and logistics

    Accounts Payable Management

    • Accounts payable management involves managing payments to suppliers and creditors
    • Importance of accounts payable management: maintains relationships with suppliers, manages cash outflows and working capital, and affects creditworthiness and financial health
    • Strategies for accounts payable management:
    • Negotiating payment terms and discounts
    • Implementing efficient payment processing systems
    • Prioritizing and scheduling payments

    Short-term Financing

    • Short-term financing options for working capital needs: bank overdrafts, short-term loans, invoice financing, and factoring
    • Importance of short-term financing: meets temporary cash flow gaps, supports seasonal or fluctuating demand, and supplements core financing sources
    • Considerations for short-term financing:
    • Interest rates and fees
    • Repayment terms and schedules
    • Creditworthiness and eligibility

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    Description

    Learn about managing cash inflows and outflows to maintain liquidity and profitability, strategies for cash flow optimization, and measuring inventory turnover.

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