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WORKING CAPITAL MANAGEMENT

Onderwijs en notities

Fatinah Zulkifli

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FIN430

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WORKING CAPITAL MANAGEMENT Door Fatinah Zulkifli Mind Map: WORKING CAPITAL MANAGEMENT

1. POLICIES OF WCM

1.1. Relaxed Policy

1.1.1. <----------------

1.1.1.1. low risk

1.1.1.2. maintain large amount of CA with flexible credit policy

1.1.1.3. high liquidity & potentially low profitability

1.2. Moderate policy

1.2.1. <---------------

1.2.1.1. <-----------------

1.2.1.1.1. <----------------------------

1.3. Restricted policy

1.3.1. <------

1.3.1.1. mixture of relaxed and restricted policy

1.3.1.2. moderate risk & return, maintain liquidity

1.3.1.3. invest in productive assets and at the same time holds sufficient CA

2. CONCLUSION

2.1. Risk and return that relate to the level of liquidity and profitability of a firm

2.2. the aggresive promises the highest return

2.3. the conservative has at least but also the lowest expected return

2.4. teh hedging (maturity matching) falls between two extremes

3. IMPLICATION OF EXCESS (REDUNDANT)

3.1. Excessive debtors and defective credit policy

3.2. low rate of ROI, the market value of shares may fall

3.3. Less productivity of a firm

4. STRATEGIES OF WORKING CAPITAL FINANCING

4.1. 1. Maturity Matching - match of the assets with the maturity of the financing - moderate risk and moderate return

4.2. 2. Aggressive Approach - uses short term (temporary) financing to financing some permanent CA -higher level of temporary financing - current ratio under this approach is low and may be less than one - high risk and high return

4.3. 3. Conservative Approach -lowest level of risk compared other working capital approaches -uses long term financing for the majority of its assets -firm assured of the availability of funds even during period of tight money supply -low risk and low return

5. Definition

5.1. WHAT IS WORKING CAPITAL

5.1.1. known as revolving capital, circulating capital or short term capital or short term capital.

5.2. CONCERS WTIH MANAGING FIRM'S LIQUIDITY

5.2.1. 1. appropriate level and mix of current assets 2. appropriate level and mix of current liabilities

5.3. EXAMPLE

5.3.1. current assets of company may change from one from to another, from cash to inventories, inventories to receivables, receivable to cash.