Working Capital Flashcards
How to reduce employed capital
Therefore, increases in current liabilities such as accounts payable increase cash.
Cash Management and the Target Cash Balance: Thus, the goal of the cash manager is to minimize the cash amount the firm must hold for conducting its normal business activities while continuing to maintain a sufficient cash reserve.On the one hand, if a company holds more cash than needed to support its operations, its return on invested capital (ROIC) will be dragged down because cash earns a low rate of return. On the other hand, if a company doesn’t have enough cash, then it might experience financial distress if there is an unexpected downturn in business. How much cash is enough?
The cash conversion cycle (CCC) is the length of time between the firm’s actual cash expenditures to pay for productive resources (materials and labor) and its own cash receipts from the sale of products.
