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Corporate Finance Workbook: A Practical Approach, Second Edition by George H. Troughton, CFA, Martin S. Fridson, CFA, Michelle R. Clayman, CFA

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CHAPTER 8

WORKING CAPITAL MANAGEMENT

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

  • Describe primary sources of liquidity and factors that influence a company’s liquidity position.
  • Compare a company’s liquidity measures with those of peer companies.
  • Evaluate working capital effectiveness of a company based on its operating and cash conversion cycles, and compare the company’s effectiveness with that of peer companies.
  • Explain the effect of different types of cash flows on a company’s net daily cash position.
  • Identify and evaluate the necessary tools to use in managing a company’s net daily cash position.
  • Calculate and interpret comparable yields on various securities, compare portfolio returns against a standard benchmark, and evaluate a company’s short-term investment policy guidelines.
  • Evaluate a company’s management of accounts receivable, inventory, and accounts payable over time and compared to peer companies.
  • Evaluate the choices of short-term funding available to a company and recommend a financing method.

SUMMARY OVERVIEW

  • Understanding how to evaluate a company’s liquidity position.
  • Calculating and interpreting operating and cash conversion cycles.
  • Evaluating overall working capital effectiveness of a company and comparing it with other peer companies.
  • Identifying the components of a cash forecast to be able to prepare a short-term (i.e., up to one year) cash forecast.
  • Understanding the common types of short-term investments, ...

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