FIN 305 Study Guide - Final Guide: Inventory Turnover, Deferral, Accounts Payable
29 Nov 2015
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Potential untapped sources of cash that businesses may find internally. Manage cash and other working capital items. Negotiating supplier terms (costs, timing, volume discounts) Why use? equity: to compensate for the disadvantages of other people"s money ie. external sources, both debt and, reduce total need/costs of external financing or at least defer it to save financing costs, disadvantages. Increased management time consumed by acquiring the funds, financial reporting, managing relationships. Accounts payable: to defer payments in time, but unwise to damage relationship with vendors, don"t consider stretching payments by more than a week, take advantage of prompt payment discounts of 2% + 2/10 net 30 pay within 10 days to receive 2% discount. Business has k cash in bank and keeps it this way as a result of collecting cash from customers, employees, taxes, loans. Can move k into a high interest account and earns half a percent. I = principal x annual interest rate x fraction of a year.
