BFC2140 Lecture Notes - Lecture 7: Corporate Finance, Cash Conversion Cycle, Free Cash Flow
20 Oct 2018
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Explain the cash cycle of the firm and explain why managing working capital is important. Use trade (cid:272)redit to the fir(cid:373)"s ad(cid:448)a(cid:374)tage. Make decisions on extending credit and adjusting credit terms. Determine the costs and benefits of holding additional inventory. Contrast the different instruments available to a financial manager for investing cash balances. Is sometimes the only source of funding available to a firm. Payables management: o(cid:374)l(cid:455) (cid:271)orro(cid:449) fro(cid:373) supplier o(cid:374) trade (cid:272)redits if it"s (cid:272)heaper (cid:894)e. g. (cid:272)o(cid:373)pared to the (cid:271)a(cid:374)k(cid:895, cost of forgoing the discount increases as, discount percentage increases, length of loan period decreases. Stretching accounts payable - when a firm ignores the due date and pays later: reduces direct cost of trade credit, as it lengthens the time that a firm has use of the funds. Inventory management: holding sufficient inventory level helps prevent stock-outs, however holding too much inventory can be costly. Just-in-time (jit) inventory management - when a firm acquires inventory precisely when needed.
