Month: June 2008

This part describe the features of factoring, its advantages and disadvantages and illustration on how to compute the maximum loan or advance a firm can get from the factoring company. In Part 2, we see a simple illustration comparing the cost of factoring against bank offer. What is factoring? <!–[if !supportLists]–> <!–[endif]–>A source of short … Read more

In earlier article, we understand the concept of cost of capital or weighted average cost of capital of a firm. This article reviews the concept of marginal cost of capital: The basic concept of Marginal Cost Of Capital Incremental cost the firm will need to pay to raise an additional dollar of capital This concept … Read more

Some of factors include the following:   Type/Nature of Business: Food business on cash basis whilst manufacturing business has more accounts receivable  Level Of Sales: Aggressive top management will resort to relaxation or extension of credit terms to the customers to boost up the firms’ sales volume  Credit And Collection Policy: Companies which has strict … Read more

Managing Accounts Receivable is also known as Credit Management or Credit Control. In an organization, credit sales form large portion of the sales re: about 15% to 25% of a firm’s assets. To increase sales, top management will resort to increasing/extending the credit period to the customers. Append below showed how we compute the viability … Read more

Part 1 describe what’s cash conversion cycle(ccc) which basically is the length of time(in terms of days) working capital is tied up. This article looks at how to compute cash conversion cycle and how we can improve it:   COMPUTATION OF CASH CONVERSION CYCLE   Company XYZ has the following: Annual sales of $15m Cost … Read more

For a firm, it can exercise a few options/policies when considering the risk return aspect when managing its working capital. The following describe the different policies:     (1) MATCHING OR HEDGING APPROACH/POLICY   This approach or policy is a moderate policy that matches assets and liabilities to maturities. Basically, a firm uses long term … Read more

Cash Conversion Cycle(CCC) is a close loop cycle which encompasses the following five (5) stages of normal operating business cycle:   1 The receipt of raw materials from suppliers; 2 Conversion of the raw materials into work in progress and finally to finished products; 3 Delivery of goods and billings to the customers/accounts receivable 4 … Read more