Subject Business Finance

Question

What are some tools that companies have to manage their (net operating) working capital? Provide examples of inventory and receivables management techniques. What is the Cash Conversion Cycle and why is this a useful metric? Are there risks if this is too low?

Solution Preview

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There are several tools which can be used to manage different components of working capital. The intersection of carrying costs and shortage costs can be used to determine the level of optimal inventory. The working capital financing policy and cash budgeting strategies can be used to manage cash. The tools of Economic Order Quantity (EOQ) and Just In Time Inventory (JIT) can be used to manage inventory levels. The cash discount offered to...

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