Cash Ratio ​ Cash Ratio= Current Liabilities / MCS ​ where:.............................................................................................................................................................................................. MCS=Market Value of Cash and Marketable Securities ​

Current Ratio Current Ratio= Current Liabilities / Current Assets ​ ​

Quick Ratio Quick Ratio= Current Liabilities / Quick Assets ​ ​

Short-Term Cash Budget

Long-Term Cash Budget

Inventory control helps connect the upstream activities of purchasing and manufacturing to the downstream activities of sales and product demand to prevent bottlenecks, speed up processes, identify slow-moving or obsolete items, and even help evaluate suppliers.

raw materials and components

finished goods and maintenance

work in progress

repair and operating supplies

a. Carrying cost @ storage cost

b. Holding cost @ ordering cost

c. Reorder point

d. Average inventor

e. Total cost

f. Economic order quantity (EOQ)

The longer your accounts receivable last (i.e., the longer you don't collect your money), the longer you face limits to investing in production for your next order. Uncollected payments tie up working capital and lead to longer business cycles.

Monitoring the accounts receivable is important since a company's liquidity depends on converting its accounts receivable to cash in time to pay its current liabilities when they are due.

CONTROL OPERATION

IMPORTANCE

Accounts Receivable............................................................... . . .......... Accounts receivable usually occur because of credit sales. It arises as a result of buying goods or services on credit. In general, the payment period ranges from one to two months.

Notes Receivable This receivable has a physical form of a formal letter. This type of loan has a bill of between 2-3 months. Debt settlement made within that time will not be subject to interest. However, if the debtor requests an extension of the payment period, interest will be charged according to a monthly extension.

Other Receivables This receivable is of a broader type, as it includes interest receivables, salary receivables, employee advances, and tax refunds. Due to their general nature, notes can be reported separately on the balance sheet.

METHOD 1. Calculate ART With A/R Aging Reports 2. Offer Your Clients Flexible Payment Plans 3. Sign a Contract or Create a Purchase Order Immediately 4. Be Prompt When Reminding Clients About Payments 5. A/R Automation

PROCESS 1. Sales and delivery – Communication with customer regarding a product or service resulting in sales/delivery 2. Invoice – A/R department sends invoice to the customer 3. Payment collection – Customer typically has 30 days to pay 4. Reconciliation – Process begins again as payment is collected or written off

EARLY PAYMENT 1. Tight margins 2. Customers take the discount but don’t pay early 3. Creates extra work

SETTLEMENT DISCOUNTS 1. Invoice the customer's sales order, sending them an invoice stating the terms of the settlement discount being offered. 2. Record the payment for the invoice once it's received. If the settlement discount was taken, the order will look underpaid. 3. Raise a credit note for the amount of the settlement discount. 4. Allocate the credit to the invoice.

The cash required by a firm to meet the day to day needs of its business operations. In an ordinary course of business, the firm requires cash to make the payments in the form of salaries, wages, interests, dividends, goods purchased, etc.

The tendency of a firm to hold cash, to meet the contingencies or unforeseen circumstances arising in the course of business.

The firms hold cash for the speculative purposes to avail the benefit of bargain purchases that may arise in the future. For example, if the firm feels the prices of raw material are likely to fall in the future, it will hold cash and wait till the prices actually fall.

The flow of a cash operating cycle is as follows: 1. Obtaining raw material 2. Producing goods 3. Having finished goods 4. Having receivables from making a sale 5. Obtaining cash (receiving payment from customers)

To calculate CCC, you need to collect information from the company's financial statements: - Average inventory over the period - Cost of goods sold or cost of sales - Accounts receivable balance - Annual revenue - Ending accounts payable

Known as matching policy, adopting this strategy ensures that the current assets of a company are always in sync with short-term liabilities.

As the name may suggest, aggressive policies involve the maximum risk, and thus, also bring the potential for multiplied growth.

An organisation undertakes this strategy only when it requires minimising risk to the furthest. Under this policy, the management regulates the credit limits stringently to ensure low risk.

Defined as the process through which a company plans for utilizing its current assets and liabilities in the best possible manner to ensure operational effectiveness

The main objectives of working capital management include maintaining the working capital operating cycle and ensuring its ordered operation, minimizing the cost of capital spent on the working capital, and maximizing the return on current asset investments.

(Beginning Inventory + Ending Inventory) / 2 Then, use it to calculate, ........................................................................................................... ...............................................DIO:Average Inventory / Cost of Goods Sold

Average accounts receivable 2............................................................................................ ......................................................................................... .................. ... Then, calculate the DSO:[4] (Accounts Receivable / Annual Revenue) x Number of Days in Period

Ending Accounts Payable / (Cost of Sales / Number of Days)

Days inventory outstanding + Days sales outstanding - Days payables outstanding

Inventory period = 365 / inventory turnover

Accounts receivable period = 365 / receivables turnover

The following formula can be used for calculating the operating cycle: ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Operating cycle = inventory period + accounts receivable period ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, This equation can also be used: ............................................................................................................................ Operating cycle = (365 / (cost of goods sold / average inventory)) + (365 / (credit sales / average accounts receivable))