M2 A1 Discussion Current Assets/Liabilities

M2 Assignment 1 Discussion 

Assignment 1: Discussion Question

The management of current assets and current liabilities in the short run can lead to several challenges for the financial manager.  What are some of the more common challenges or problems encountered by the firm in this regard, and what are the possible solutions?  Explain your answers.

By the due date assigned, respond to the discussion question. Submit your response to the  Discussion Area. Start reviewing and responding to your classmates as early in the module as possible.

Grading Criteria 

Maximum Points

 

Quality of initial posting, including fulfillment of assignment instructions 16 

Quality of responses to classmates 12

Frequency of responses to classmates 4 

Reference to supporting readings and other materials 4

Language and grammar 4

 

Total: 40 

M2A1 Student #1 discussion posts

Rawley Harris posted Jan 13, 2018 3:35 PM

Subscribe

Working capital management involves overseeing the current assets of a business. All businesses that sell product will have some current and fixed assets.  Current assets that firms manage can be identified as cash, marketable securities, accounts receivable, and inventory. One of the first challenges of a firm is managing inventory because it ultimately affects your cash flow. In most cases the longer a company is in business the more inventory and assets they acquire. Build-up of inventory can be leveled by matching the forecast and actual production schedule. shipping the product on time moves your company into a position to reduce inventory and receivable status.  Another common challenge is keeping enough cash for growth as the business expands. Cash management involves constant involves the proper management and use of cash resources. The basic need for cash is driven from business agreements that require transactions, measures to ensure the firm remains healthy over the short period term, and options that are being weighed by the financial manager for future opportunities. Transactions are needed to make pay roll and to cover items such as taxes, according to Danielsen, (2014). Cash is also used during periods when incoming receivables is slower that forecasted. Another common problem is that cash-flow can be held up by the speed in which transactions happen, some methods of over-coming slowness of transactions is the use of electronic payments, or the use of lock boxes. Another method of ensuring cash is on hand is by the reducing of float days in which a customer as to their account current. Companies must also be wise with excess cash by investing it in marketable securities to earn interest such as Money Market Mutual Fund.  Raw materials, work in progress, and finished goods must be accounted for and managed to keep optimal cash flow, this inventory could be affected by sales and the current economy. Another consideration would be Just-In-Time inventory that would be shipped to customers just before they needed it, and this a form of managing your cash in-flow because it reduces what you spend on inventory. Many manufacturers experience a cost saving by working with its suppliers and reducing inventory that would sit on shelfs. The most important objective is to have a solid balance between what we spend and what cash we have, according to Danielsen, (2014). Seasonal work can often become a challenge for firms who are managing smaller amounts of cash-flow. The best method for managing seasonal work is to determine how much will be needed for the entire year and based on previous year history and through forecasting and only make that amount over a set period.  How well a firm manages its assets and liabilities will affect their survivability, from a short term prospective. Companies who borrow money from financial institutions receive better rates when they demonstrate that they are financially healthy. Firms using accounts receivables and inventory as collateral for loans is that they may turn these assets into cash sooner; using a secured loan the business has merged its needs with its assets.

Block, S., Hirt, G., Danielsen, B. (09/2014).  Foundations of Financial Management, 15th Edition. [Argosy University]. Retrieved from https://digitalbookshelf.argosy.edu/#/books/125956143

M2A1 Student #2 discussion posts

Werner Wooten posted Jan 11, 2018 3:44 PM

Subscribe

Challenges for Financial Manager

            When it comes to current assets we can look at the cash accounts, accounts receivable and also the inventory an organization has at hand. Current assets can change daily, which makes planning and decision making very difficult. A perfect example would be in the investment of ice cream during the summer months, however; if a company would make the same purchase from a supplier during the winter months turnover would not be as high and therefore inventory is stalled and profits are lost. When inventory is stalled, it is viewed as cash which could have been invested in other investments for increased profitability. One way a manager could prepare for such an inventory base could be via the use of the Just-In-Time method. This method requires direct and constant communication with vendors and suppliers as well in order to have the supplies readily available for. In order to be successful an organization must have a good inventory turnover and the cash account must be high in order to make future investments. If a manager has a poor Cash account as well as a poor Receivables account, then the company is destined to fail. It is important to look at a company’s payment history which is interested in making a purchase via credit due to the fact that current assets rely upon the “promised” income as well.

            Having honest and successful buyers and sellers is important since their payments determine the total current assets. Creditors and Suppliers cash checks from an organization which get withdrawn from a company’s Cash account this is why it is important to do research and not make faulty business choices. Short term investments can become an issue if an organization has misjudged the sale of a particular item, for example the Ice Cream purchase discussed above. The unsold Ice Cream will be stalled in a company’s storage, it still holds value, however; it is not going to produce much profit. The company still owes the supplier payments but since the Ice Cream is not selling the company must switch to long-term repayments which allows for less of a loss of funds due to the poor inventory turnover. One must remain true when it comes to short term investments and loans with other companies, if one happens to not be dependable, then future credit deals will not occur and reputation will suffer.