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Managing Working Capital

Managing Working Capital. Cash. Why should a business hold cash?. How much cash to hold? It depends on…. Controlling the cash balance. There is no one “right” way to manage cash. But a simple model suggests having a target cash balance, as well as upper and lower limits on cash held.

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Managing Working Capital

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  1. Managing Working Capital Cash

  2. Why should a business hold cash?

  3. How much cash to hold? It depends on…

  4. Controlling the cash balance There is no one “right” way to manage cash. But a simple model suggests having a target cash balance, as well as upper and lower limits on cash held. Working capital balances (e.g. securities, inventories, A/R and A/P) would be adjusted to deal with too much or too little cash.

  5. - C + A + B = D

  6. A + B - C = D

  7. + A + B - C = D * The example assumes that receivables and payables stay constant throughout the year; and that ALL purchases and sales are on credit.

  8. Cash transmission practices can affect the OCC

  9. Managing Trade Accounts Payable

  10. When a business allows a customer to buy on credit, there are often 3 important time periods….

  11. To help in controlling Accounts Payable, keep track of A/P Days: * See again the example above.

  12. Problems with managing working capital faced by small businesses

  13. Problems with managing working capital faced by small businesses (cont.)

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