Working Capital Discussion

Working capital management involves managing __________ and __________.

current assets; current liabilities

Current assets include __________, __________, __________, and __________.

inventory; accounts receivable; marketable securities; cash

Current liabilities consist of __________, __________, and __________.

notes payable; accruals; accounts payable

Excessive working capital leads to __________ and __________.

idle funds; overall inefficiency

Inadequate working capital results in an inability to pay __________ in time.

short-term liabilities

The cash conversion cycle (CCC) measures the time required to convert __________ invested in operations to __________ received from operations.

cash; cash

The operating cycle (OC) is calculated by summing __________ and __________.

average age of inventory; average collection period

The formula for CCC is __________.

CCC = OC - APP

__________ is the probability that a firm will be unable to meet its financial obligations.

Risk of insolvency

The five C's of credit include Character, Capacity, Capital, __________, and __________.

Collateral; Conditions

Credit terms define the conditions under which __________ is extended to customers.

credit

A cash discount is a percentage deduction from the __________ for quick payments.

purchase price

The aging schedule helps in assessing __________ by categorizing accounts receivable based on their age.

credit risk

Improper management of accounts receivable can lead to increased __________ expenses for the firm.

bad debt

An aggressive funding strategy uses __________ for seasonal needs and __________ for permanent needs.

short-term debt; long-term debt

Credit monitoring techniques include average __________ period and __________ of accounts receivable.

collection; aging

The optimal transaction size minimizes the __________ from investment expenses in cash management.

total cost

Using a __________ increases the efficiency of receivables collection by reducing the lag time.

lockbox system

The cash conversion cycle consists of three components: average selling period, average collection period, and __________.

average payment period

Stretched payables mean delaying payments to take advantage of __________.

float

The total cost related to cash management can be found by calculating the __________ involved in each transaction.

transaction costs

Increasing the cash discount period can yield a __________ in bad debts.

decrease

The goal of receivable management is to collect accounts receivable __________ without losing sales.

as quickly as possible

A __________ strategy finances its seasonal requirements using long-term funds.

conservative funding

Excess inventory due to excessive working capital can lead to theft, waste, and __________.

losses

A firm's __________ is a core metric indicating its financial health and cash flow management.

working capital