Please write 150+ words per question.
1) Apart from the collection and payment policies, what other collection and payment policies could you use to better balance the cash flow needs of a company with its business partner relationships?
2) How can you sustain good longer-term relations with business partners (customers and vendors) in the face of the need to improve cash flow and hold down bank borrowing?
3) If a company's need to improve its cash flow may have led to delaying payment to a small vendor, which is very dependent on that company. How does the company balance the ethical issue of possibly putting the small vendor out of business with its need to improve its own cash flow?
The question is asking you to comment on the relationships, policies and ethics regarding some issues of working capital management.
<br>The question presupposes that there are some common issues about collection and payment, which are common across industries, this is not supported by evidence. For instance the payment system is a hospital maybe entirely through payment received from insurance claims. Also the question presumes that the vendor payment system can be commented on without reference to the industry. This is not usually the case. There are thousands of companies whose vendors, small or large are owned by the same group and payments are delayed for several years without any question about ethics or moral turpitude being raised.
<br>Given below is a template to help you answer the question.
<br>1. Cash in hand: The cash in hand policy should be such that adequate cash should be available for cash expenses and emergency payments, however at the same time there should not be excess cash that would lead to stagnant cash increasing the cost of holding cash.
<br>2. Purchase of raw materials: The purchase of raw materials should be made strictly according to the requirements and such that the purchases are made at the time of requirement of raw materials. Also a reasonable interest free credit period, usually of three months ...
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