University of Malakand Wk 7 Working Capital Management Discussion & Response – Description
Cash Budget
Close to 50% of the typical industrial and retail firm’s assets are held as working capital. Many newly minted college graduates work in positions that focus on working capital management, particularly in small businesses in which most new jobs are created in today’s economy.
To prepare for this Discussion: Shared Practice, select two of the following components of working capital management: the cash conversion cycle, the cash budget, inventory management, and credit policies.
Think about scenarios in which your selected topics were important for informing decision-making. Be sure to review the video links above and conduct additional research using academically reviewed materials, and your professional experience on working capital concepts to help develop your scenarios.
https://youtu.be/iNm8sNDjDgs
https://youtu.be/maF024vY1es
Hello,here’s the peer post that you have to respond in at least 250 wordsPost RutujaCash BudgetA cash budget would be a document that managers or other company professionals may use to help them in handling cash flow through an acceptable manner. Cash budgets are now being prepared in advance, with the intention of representing both the anticipated cash inflows or collections as well as the anticipated cash outflows or payments that will be made by the company. Based on the needs of the business, the cash budget might be established on an annual, monthly, or even weekly basis. The purpose of the cash budget would be to provide the company with an insight of their performances by allowing them to monitor the cash budget across a certain time period. When there are seasonal changes in goods demand, the company may utilize a cash budget like a tactical tool to come up with budget goals that are more realistically attainable (Wadesango et al., 2019). If there are no significant swings in the cash flow of the firm over the course of a year, then it will be possible for the company to employ a cash budget on an annual basis. The management of the firm is able to provide accurate estimates of the cash needs for future activities. This enables the organization to make accurate plans and formulate strategies to either improve or manage cash flows by finding investment sources even before negative circumstances might cause damage to commercial activities.Decision-Making and Cash BudgetingBecause it enables an organization to comprehend and anticipate future surpluses, a cash budget makes it easier for a company to make management choices that are in the best interests of the firm. The company experts may maintain their readiness and make the appropriate choices in order to avert any crisis situation that may have been brought on by the engagement in inappropriate investment prospects. The cash may also help business executives make strategic choices on how to deal with seasonal shifts and transform challenging circumstances into fruitful opportunities. This can be done in order to maximize profit and minimize loss (Wadesango et al., 2019). A cash budget may be of assistance in making the appropriate expenses, which in turn could help to ensure that payments to creditors, vendors, and workers are made on time. For instance, if a firm has a total cash reserve of $15,000 and spends $2,500 on staff wages, then advertising will cost $1,000, maintenance and updates would cost $1,000, and printing will cost $500. Because of this, the total cost that has been estimated is $10,000, and the cash budget in the end would be $5,000 ($15,000 – $10,000), which equals $2,500,000.Cash Conversation CycleA cash conversion cycle would be a measuring tool that companies use to indicate the amount of time it takes for the firm to change its inventory into real cash flows derived from the sales they make. The purpose of cash conservation cycle would be to determine how much time passes between when money is invested in a business and when that money is returned to the business in the form of sales or even other cash inflows (Nwude et al., 2018). The CCC is a technique that may be used by business experts to determine how long it would take for a prior investment to really result in cash being obtained.Value of Decision-Making Cash Conversation CycleIn the present context, the cost of raw materials is rising, so when a firm calculates its CCC, they may discover whether or not costs of raw materials in aspects of average inventory influence the bottom line. This information can then be used to inform appropriate long-term choices depending on the health of the business. Because the cash conversion cycle may give statistics on the amount of time it would take to generate profit, the company is able to make educated judgments regarding the price of its products (Nwude et al., 2018). For the sake of illustration, a company must begin the fiscal year with an inventory of $2,000 and end the year with an inventory of $4,000 for a total of $30,000 worth of items sold. If this is the case, the number of days that inventory is overdue would equal ($ 2,000 + $ 3,000) / 2 = $2500 / $30,000 = 0.0833333333 × 365 = 30.41. The conversion of inventory into sales would take a period of one month.ReferencesNwude, E. C., Agbo, E. I., & Christian Ibe-Lamberts, C. I. L. (2018). Effect of cash conversion cycle on the profitability of public listed insurance companies. International journal of economics and financial issues, 8(1), 111-117.Wadesango, N., Tinarwo, N., Sitcha, L., & Machingambi, S. (2019). The impact of cash flow management on the profitability and sustainability of small to medium-sized enterprises. International Journal of Entrepreneurship, 23(3), 1-19
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