Working capital and strategic debtor management

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WorkingCapitalandStrategicDebtor Management RobertAlanHill Downloadfreebooksat Robert Alan Hill Working Capital and Strategic Debtor Management Download free eBooks at bookboon.com Working Capital and Strategic Debtor Management 1st edition © 2013 Robert Alan Hill & bookboon.com ISBN 978-87-403-0335-3 Download free eBooks at bookboon.com Working Capital and Strategic Debtor Management Contents Contents About the Author Part One: An Introduction An Overview 10 1.1 Introduction 10 1.2 Objectives of the Text 10 1.3 Outline of the Text 11 1.4 Summary and Conclusions 14 1.5 Selected References 14 Part Two: Working Capital Management 16 he Objectives and Structure of Working Capital Management 17 2.1 Introduction 17 2.2 he Objectives of Working Capital Management 19 2.3 he Structure of Working Capital 20 360° thinking Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities Download free eBooks at bookboon.com Click on the ad to read more Working Capital and Strategic Debtor Management Contents 2.4 Summary and Conclusions 23 2.5 Selected References 24 he Accounting Concept of Working Capital: A Critique 25 3.1 Introduction 25 3.2 he Accounting Notion of Solvency 26 3.3 Liquidity and Accounting Proitability 28 3.4 Financial Interpretation: An Overview 29 3.5 Liquidity and Turnover 32 3.6 Summary and Conclusions 37 he Working Capital Cycle and Operating Eiciency 39 4.1 Introduction 39 4.2 he Working Capital Cycle 39 4.3 Operating Eiciency 41 4.4 Summary and Conclusions 46 Real World Considerations and the Credit Related Funds System 47 5.1 Introduction 47 5.2 Real World Considerations 48 Increase your impact with MSM Executive Education For almost 60 years Maastricht School of Management has been enhancing the management capacity of professionals and organizations around the world through state-of-the-art management education Our broad range of Open Enrollment Executive Programs offers you a unique interactive, stimulating and multicultural learning experience Be prepared for tomorrow’s management challenges and apply today For more information, visit www.msm.nl or contact us at +31 43 38 70 808 or via admissions@msm.nl the globally networked management school For more information, visit www.msm.nl or contact us at +31 43 38 70 808 or via admissions@msm.nl Download free eBooks at bookboon.com Click on the ad to read more Working Capital and Strategic Debtor Management Contents 5.3 he Credit Related Funds System 52 5.4 Summary and Conclusions 54 Part hree: Strategic Debtor Investment 55 he Efective Credit Price and Decision to Discount 56 6.1 Introduction 56 6.2 he Efective Credit Price 57 6.3 he Efective Discount Price 58 6.4 he Decision to Discount 60 6.5 Summary and Conclusions 66 he Opportunity Cost of Capital and Credit Related Funds System 67 7.1 Introduction 67 7.2 he Opportunity Cost of Capital Rate 67 7.3 he Credit Related Fund System 69 7.4 he Development of heory 71 7.5 Summary and Conclusions 74 7.6 Selected References 75 GOT-THE-ENERGY-TO-LEAD.COM We believe that energy suppliers should be renewable, too We are therefore looking for enthusiastic new colleagues with plenty of ideas who want to join RWE in changing the world Visit us online to find out what we are offering and how we are working together to ensure the energy of the future Download free eBooks at bookboon.com Click on the ad to read more Working Capital and Strategic Debtor Management Contents he Strategic Impact of Alternative Credit Policies on Working Capital and Company Proitability 76 8.1 Introduction 76 8.2 Efective Prices and the Creditor Firm 77 8.3 Alternative Credit Policies, Working Capital Investment and Corporate Proitability 80 Summary and Conclusions 84 Part Four: Summary and Conclusions 85 Empirical Evidence and heoretical Review 86 9.1 Introduction 86 9.2 he heory 86 9.3 he Empirical Evidence 89 9.4 Late Payment and the Case for Legislation 95 9.5 Summary and Conclusions 99 9.6 Selected References 8.4 101 With us you can shape the future Every single day For more information go to: www.eon-career.com Your energy shapes the future Download free eBooks at bookboon.com Click on the ad to read more Working Capital and Strategic Debtor Management About the Author About the Author With an eclectic record of University teaching, research, publication, consultancy and curricula development, underpinned by running a successful business, Alan has been a member of national academic validation bodies and held senior external examinerships and lectureships at both undergraduate and postgraduate level in the UK and abroad With increasing demand for global e-learning, his attention is now focussed on the free provision of a inancial textbook series, underpinned by a critique of contemporary capital market theory in volatile markets, published by bookboon.com To contact Alan, please visit Robert Alan Hill at www.linkedin.com Download free eBooks at bookboon.com Part One: An Introduction Download free eBooks at bookboon.com Working Capital and Strategic Debtor Management An Overview An Overview 1.1 Introduction hroughout all the previous texts in my bookboon series (referenced at the end of this Chapter) we deined Strategic Financial Management in terms of two inter-related policies: The determination of a maximum net cash inlow from investment opportunities at an acceptable level of risk, underpinned by the acquisition of funds required to support this activity at minimum cost You will also recall that if management employ capital budgeting techniques, which maximise the expected net present value (NPV) of all a company’s investment projects, these inter-related policies should conform to the normative objective of business inance, namely, the maximisation of shareholders wealth Having dealt comprehensively with the pivotal role of capital budgeting and ixed asset formation elsewhere in the “Strategic Financial Management” texts of the bookboon series, the initial purpose of this study is to focus on current asset investment and the strategic importance of working capital management Not only current assets comprise more than 50 per cent of many irms’ total asset structure, but their inancing is also an integral part of project appraisal that is frequently overlooked We shall then explain why the “terms of sale” (credit terms) ofered to customers determine a company’s sales turnover and hence the debtor, inventory and cash balances, which deine its working capital requirements Properly conceived, debtor (accounts receivable) policies should underpin the proitability of ixed asset formation, without straining liquidity or compromising a irm’s future plans Comprehensive, yet concise, all the material is presented logically as a guide to further study, using the time- honoured approach adopted throughout all my bookboon series Each Chapter begins with theory, followed by its application and an aprropriate critique From Chapter to Chapter, summaries of the text so far are presented to reinforce the major points Each Chapter also contains Activities (with indicative solutions) to test understanding at your own pace 1.2 Objectives of the Text he text assumes that you have prior knowledge of Financial Accounting and an ability to interpret corporate inancial statements using ratio analysis So, at the outset, you should be familiar with the following glossary of terms: Working capital: a company’s surplus of current assets over current liabilities, which measures the extent to which it can inance any increase in turnover from other fund sources Download free eBooks at bookboon.com 10 ... 23 Working Capital and Strategic Debtor Management The Objectives and Structure of Working Capital Management hus, the key to understanding the structure and eicient management of working capital. .. Working Capital Management Download free eBooks at bookboon.com Working Capital and Strategic Debtor Management The Objectives and Structure of Working Capital Management The Objectives and Structure... supply and demand for the physical inputs and outputs of the irm Download free eBooks at bookboon.com 17 Working Capital and Strategic Debtor Management The Objectives and Structure of Working Capital
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