Corporate Finance II: Working Capital Management

These flashcards cover key concepts and vocabulary relating to the management of cash and working capital in corporate finance.

Cash Management

The process of collecting, managing and investing cash for a business.

Liquidity

The availability of liquid assets to a company, necessary for meeting short-term obligations.

Cash Flow

The total amount of money being transferred into and out of a business.

Cash Flow Positive

A financial state where money coming in exceeds money going out.

Working Capital

The difference between a company’s current assets and current liabilities.

Cash Conversion Cycle (CCC)

The time it takes for a business to convert its investments in inventory and other resource inputs into cash flows from sales.

Inventory Conversion Period (ICP)

The number of days a company takes to sell its inventory.

Accounts Payable Deferral Period (APDP)

The time a business takes to pay its suppliers.

Accounts Receivable Collection Period (ARCP)

The time it takes for a business to collect payments from its customers.

Financing Needs

The funds required by a business for its operation, investment and expansion.

Permanent Financing Needs

The long-term financial requirements of a business, usually constant.

Temporary Financing Needs

Short-term financial requirements that fluctuate based on business activity.

Factoring

A financial transaction where a business sells its accounts receivable to a third party at a discount.

Leasing

A contractual arrangement where a party obtains the use of an asset, typically equipment, for a specified period.

Effective Cash Management

A strategy for managing cash flows and liquidity for sustaining business operations.

Short-term Financing

Funds provided for a period of less than one year, usually used for operational purposes.

Cash Reserves

The amount of money that is kept on hand for immediate needs.

Short-term Liquidity Problems

Issues faced by a company when it does not have sufficient liquid assets to cover its short-term obligations.

Cash Flow Forecasting

The process of estimating future cash inflows and outflows over a specific period.