During the meeting, my boss points out that the current level of bad debt and investment in accounts receivable are a little bit large. Apart from tightening the current credit policy, could you please suggest one way to reduce each of them if our company wants to maintain the credit policy.© BrainMass Inc. brainmass.com October 24, 2018, 9:44 pm ad1c9bdddf
Reduce the investments in accounts receivables by:
Pledging Accounts Receivables
Accounts receivables represent the money owed to a business from credit sales to customers. Accounts receivable can also be used as a way of short term financing if it is used as collateral for a loan. This is known as the pledging of the accounts receivable. The value of receivable depends on the credit ...
The solution discusses credit policy.
Working Capital Management
A) Dan plans to use the preceding ratios as the starting point for discussions with SKI's operating executives. He wants everyone to think about the pros and cons of changing each type of current asset and how changes would interact to affect profits and EVA. Based on the data in the table, does SKI seem to be following a relaxed, moderate, or restricted working capital policy?
b) How can one distinguish between a relaxed but rational working capital policy and a situation where a firm simply has a lot of current asset because it is inefficient? Does SKI's working capital policy seem appropriate?
c) Calculate SKI's cash conversion cycle, assuming all calculations use a 360-day year.
d) What might SKI do to reduce its cash and securities without harming operation?
Q 23-3 What are the advantages of matching the maturities of assets and liabilities? What are the disadvantages?
Q 23-4 From the standpoint of the borrower, is long-term or short-term credit riskier? Explain. Would it ever make sense to borrow on a short-term basis if short-term rates were above long-term rates?
Q 23-5 If long-term credit exposes a borrower to less risk, why would people or firms ever borrow on a short-term basis?
Q 23-9 The availability of bank credit is often more important to a small firm than to a large one. Why?
Mini Case !
a) B&B tries to match the maturity of its assets and liabilities. Describe how B&B could adopt either a more aggressive or more conservative financing policy.
b) What are the advantages and disadvantages of using short-term credit as a source of financing?View Full Posting Details