Example on controlling working capital, Financial Management

Assignment Help:

Q. Example on Controlling working capital?

Describe how a manufacturing company could control its working capital levels and impact of the suggested control measures.

Solution:

Controlling working capital

Some of the practical aspects that could be taken to achieve this include:

1 Reducing average raw material inventory holding period

  • Ordering in small quantities to meet immediate production requirements though could lose quantity discounts.
  • Reducing the level of buffer stocks if these are held however this will increase the risk of production being halted because of a stock out.
  • Reducing the lead time allowed to suppliers, but could also increase risk of a stock out.

2 Increase the period of credit taken from suppliers

  • If credit period is extended then company may lose discounts from prompt payment. Financial effect of this must be calculated and compared with the cost of funds from other sources.
  • If credit period is extended then goodwill may be lost, which is significant in the event of goods being required urgently.

Reducing  the  time  taken  to  produce  goods  and  inventory  holding  period  or finished inventories

  • Efficiency results in cost savings hence finding an efficient way to produce goods (i.e. in economic batch quantities) though the company should ensure than quality is not sacrificed.
  • Savings arising from inventory holding reduction should be evaluated against the cost of inventory out, together with the effect on customer service.

4 Reducing average debt collection period

  • Administrative costs of speeding up debt collection and effect on sales of reducing credit period allowed should be evaluated.

Related Discussions:- Example on controlling working capital

Compute the discount and premium, Suppose the bid-ask spot prices for one B...

Suppose the bid-ask spot prices for one British pound are $1.50 and $1.60 respectively. 1. Compute the bid-ask prices for one US dollar in terms of British pound. 2. Suppose

Traditional approach to valuation, Under this approach of Valuation, ...

Under this approach of Valuation, all cash flows are discounted using single interest rate (discount rate).  For example: Consider the 5-year (7.00 percent) Treas

Show the accountable plan, Q. Show the Accountable Plan? Accountable P...

Q. Show the Accountable Plan? Accountable Plan - An accountable plan is any reimbursement or other expense allowancearrangement of an employer which meets all of the subseque

Other types of bonds, Various other types of bonds are- 1. Domestic Bond...

Various other types of bonds are- 1. Domestic Bonds 2. Foreign Bonds 3. Euro Bonds  4. Global Bonds 5. Floating Rate-Bonds

Write a report to outlining the theoretical arguments, QUESTION The Man...

QUESTION The Managing Director of your firm is thinking aloud about an appropriate gearing level for the company: "The consultants I spoke to yesterday explained that some t

Short terms working capital, Q. Short terms working capital? 1) Indige...

Q. Short terms working capital? 1) Indigenous bankers: private money leased and other country banking used to be the only source of finance prior to the establishment of the

Just-in-time inventory management, Q. Just-in-time inventory management? ...

Q. Just-in-time inventory management? It considerably improves the short-term liquidity of the business with a maximum financing requirement of $138533 rather than $155640. The

Strategic management, Develop and implement strategic plan using bounce fit...

Develop and implement strategic plan using bounce fitness as case study

Define in- order-driven according to trade intermediation, Define the in- o...

Define the in- order-driven according to trade intermediation. In- order-driven markets: In order-driven markets, buyers and sellers trade unswervingly without any intermedi

Statement used in working capital requirement, • Debtors :- Working Capi...

• Debtors :- Working Capital tied up in debtors must be estimated on the basis of cost of sales (excluding depreciation): [Cost of goods produces (that is raw materials + wages

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd