You receive a letter from your utility company asking you to save time and money by giving them authorization to deduct your average monthly bill directly from your checking account. No checks to write, no stamps to find, and you will always know what amount will be deducted and the date of the deduction. Once a year, you will be billed or credited for the difference between your yearly average and what you actually used in gas and electricity. What could be easier? Why is the utility company being so nice? Do they really care about your time and budget? The answer is yes - and no. They are making an offer that will appeal to and benefit many consumers. But more important, from the utility's standpoint, is that this offer will also be a tremendous help to the company in an area that is important to every firm - cash management.
This week, we are going to look at the ways in which a company manages its working capital. Working capital consists of the firm's current assets of which cash and cash equivalents are the most important component. Many companies that have made profits over the years have failed because they did not manage their cash wisely.
Week In Relation to the Overall Course
You already know from last week the importance of creating and updating a cash budget because it lets financial managers know when there will be excess funds to invest and when borrowing will be needed. Now we will look at some techniques to help manage cash inflows and outflows. The techniques used to manage cash are important tools. Managing cash is one of the most important responsibilities of the financial manager.
Discussion of a Key Point, Thread, or Objective
Companies and individuals hold cash for three main reasons: to conduct transactions, for precautionary p ...