Working Capital Management (Financial Management Association Survey and Synthesis Series)

As soon as a firm starts operating, and especially once it starts to grow, it needs to come to a decision about how to invest funds, how much cash and inventory to maintain, how much financing to provide to customers, how to obtain the necessary funds, and how much debt to take on and in which terms--all the answers to these questions have serious consequences for a firm's cash flow and profitability. Working Capital Management is a hands-on look at the crucial decision of how to define and finance the operating investments of a business. Starting with an overview of the fundamental framework of corporate finance, the authors set out to define the central, and usually underestimated, role that working capital plays within this structure. They show not only how to prevent the losses that result from mishandling working capital, but also how to fully exploit the strategic potential that intelligent, expert management of working capital allows. The book is the first to emphasize the relevance of the interplay between the investment and finance aspects of working capital, by discussing all of the main components of a firm's operating expenses from both an investment and finance perspective. After focusing on the varying aspects and themes of working capital, such as inventory management, strategic accounting, trade credit, and short-term debt, the authors move on to identify the long-term implications and opportunities raised by this often overlooked aspect of corporate finance. Lorenzo Preve and Virginia Sarria-Allende have at last provided a resource that identifies the impact of day-to-day business decisions, uncovering an essential yet often overlooked aspect of all firms' financial situations. Contents......Page 8 Introduction......Page 10 1 Corporate Finance......Page 16 2 Working Capital......Page 27 3 Working Capital, Seasonality, and Growth......Page 39 4 Financial Analysis and Working Capital......Page 55 5 Cash Management......Page 73 6 Managing Account Receivables......Page 84 7 Managing Inventories......Page 99 8 Managing Account Payables......Page 110 9 Short-term Debt......Page 117 10 Working Capital and Corporate Strategy......Page 128 11 Working Capital Financing Costs......Page 140 12 Patterns in Working Capital......Page 147 Notes......Page 156 References......Page 166 C......Page 170 L......Page 171 T......Page 172 Y......Page 173 Contents 8 Introduction 10 1 Corporate Finance 16 2 Working Capital 27 3 Working Capital, Seasonality, and Growth 39 4 Financial Analysis and Working Capital 55 5 Cash Management 73 6 Managing Account Receivables 84 7 Managing Inventories 99 8 Managing Account Payables 110 9 Short-term Debt 117 10 Working Capital and Corporate Strategy 128 11 Working Capital Financing Costs 140 12 Patterns in Working Capital 147 Notes 156 References 166 Index 170 A 170 B 170 C 170 D 171 E 171 F 171 G 171 H 171 I 171 L 171 M 172 N 172 O 172 P 172 Q 172 R 172 S 172 T 172 V 173 W 173 Y 173 Working Capital Management provides a general framework that will help managers understand working capital using a comprehensive approach that links operating decisions to their financial implications and to the overall business strategy. It will also help managers to gain a better understanding of the key drivers to profitability and value creation.