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Hello, I am looking for someone to write an essay on Financial Management Case. It needs to be at least 2500 words.Download file to see previous pages... These assets and liabilities are to be cashed
Hello, I am looking for someone to write an essay on Financial Management Case. It needs to be at least 2500 words.
Download file to see previous pages...These assets and liabilities are to be cashed or spent in the ordinary course of business. that is, we do not have to liquidate our company just to raise the cash we need, and neither do we have to pay all our long-term debts now.
Working capital basically is a measure of how we manage our collections and our costs. Good working capital management, by lowering costs and maximising collections, contributes to maximising shareholder value, which is one of the Board's primary duties.
An analysis of our current practices in this aspect of financial management has revealed the following problems:
Trade receivables have increased from the desired thirty days to the actual fifty days.
Bad debts have reached 1.5 percent of total sales.
We are spending 76,000 annually, equivalent to 3.2 percent of sales, for trade debt or receivables financing, bad debts, and overhead.
We have studied two options to manage our working capital that can bring down our costs and bring up our collections.
Summary Course of Action
We have looked at two options: Factoring (Option A) and Discounting (Option B).
We summarise our findings as follows:
Comparison of two options and current system
Current system
Trade debts from collections
40,000
Bad debts
36,000
Annual cost of debts:
76,000
Option A: Factoring
Trade debts from collections
22,000
Service charges
48,000
Savings on bad debts
(36,000)
Savings from factoring
(18,000)
Annual cost of debts:
16,000
Annual savings from Option A:
60,000
Option B: Discounting
Trade debt savings
6,400
Savings from collected bad debts
12,000
Cost of discounts
(9,600)
Annual savings from Option B:
8,800
Total savings from Options A and B:
56,800
We have calculated that factoring will save us 60,000...
This is called working capital management.
Working capital is the cash that is readily available to the organisation. This can be derived from the corporation's balance sheet by subtracting our current liabilities (short-term organisational commitments that needs cash payments) from our current assets (company resources that can be converted into cash in the short-term).
These assets and liabilities are to be cashed or spent in the ordinary course of business. that is, we do not have to liquidate our company just to raise the cash we need, and neither do we have to pay all our long-term debts now.
Working capital basically is a measure of how we manage our collections and our costs. Good working capital management, by lowering costs and maximising collections, contributes to maximising shareholder value, which is one of the Board's primary duties.
We have calculated that factoring will save us 60,000 annually. Discounts will save us an additional 8,800 by bringing down our bad debts and trade debts costs, even if these discounts will cost us initially 9,600. If we use both options, we can save 56,800 each year, equivalent to 2.4 percent of sales.
