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【正文】 onservative? ?A conservative (relaxed) policy may be appropriate if it leads to greater profitability. ?However, SKI is not as profitable as the average firm in the industry. This suggests the pany has excessive working capital. 16 6 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. CHAPTER 16 Managing Current Assets ?Alternative working capital policies ?Cash management ?Inventory management ?Accounts receivable management 16 2 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. Definitions ?Gross .: Total current assets. ?Net .: Current assets – Current liabilities. ?. Policy: Decisions as to (1) the level of each type of current asset, and (2) how current assets will be financed. ?. Management: Controlling cash, inventories, and A/R, plus ST liability management. 16 3 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. Cash Conversion Cycle CCC = + – CCC = + – CCC = + 45 – 30 CCC = 75 + 45 – 30 CCC = 90 days. Inventory conversion period Receivables collection period Payables deferral period Days per year Inv. turnover Payables deferral period Days sales outstanding 360 16 7 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. ?Increase forecast accuracy to reduce need for “safety stock” of cash. ?Hold marketable securities (also reduces need for “safety stock”). ?Negotiate a line of credit (also reduces need for “safety stock”). 16 11 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. Data Required for Cash Budget 1. Sales forecast. 2. Information on collections delay. 3. Forecast of purchases and payment terms. 4. Forecast of cash expenses, taxes, etc. 5. Initial cash on hand. 6. Target cash balance. 16 15 Copyright 169。 2023 by Harcourt, Inc. All rights reserved. What are some other potential cash inflows besides collections? ?Proceeds from the sale of fixed assets. ?Proceeds from stock and bond sales. ?Interest earned. ?Court settlements. 16
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