BUSI 530 Chapter 19: Chapter 19
Document Summary
Consumer credit: remainder of unpaid bills from the sale of goods to the final consumer. Trade credit: bulk of accounts receivable that consists of unpaid bills from sales to other companies. Inventories: may consist of raw materials, work in process, or finished goods awaiting sale and shipment. Net working capital: current assets minus current liabilities. Period between firm"s payment for materials and collection on its sales. = (inventory period + receivables period) accounts payable period. Inventory period: also called days" sales in inventory. Accounts receivable period accounts receivable / (annual sales/365) Accounts payable period accounts payable / (annual cogs/365) Carrying costs: costs of maintaining current assets, including opportunity cost of capital, encourages firms to hold current assets to a minimum. Shortage costs: costs incurred from shortages in current assets. Strike a balance between the costs and benefits of current assets. Find the level of current assets that minimizes the sum of carrying costs and shortage costs.
