• Good management of cash and inventory crucial in avoiding financial distress
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short term finanacial plannig and management
• Basic goal: keep investment in cash and other ST assets as low as possible while operating the business efficiently and effectively
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what does too high an inventory create?
Too high an inventory creates unnecessary carrying costs
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what does too low inventory involve?
Too low an inventory involves costly frequent deliveries to replenish inventory, called restocking costs
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carrying costs
Storage and tracking costs • Insurance and taxes • Losses due to obsolescence, deterioration, or theft • The opportunity cost of capital on the invested amount
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restocking costs
Either the costs of placing an order with suppliers or the costs of setting up a production run • Larger for small order sizes
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what is optimum order quantity?
y is where the cost of holding inventory is the smallest, ie where:
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you need to know.......
• Reasons for holding cash • How float arises and how to calculate what it costs • Managing seasonal cash demands
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reasons for holdig cash- The Speculative Motive
• The need to hold cash to take advantage of additional investment opportunities, such as bargain purchases
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reasons for holding cash- the precautionary motive
The need to hold cash as a safety margin to act as a financial reserve.
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reasons for holding cash- the transaction motive
• The need to hold cash to satisfy normal disbursement and collection activities associated with a firm’s ongoing operations
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defintion of float
The difference between book cash and bank cash, representing the net effect of cheques in the process of clearing
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disbursement float
Cheques written by a firm generate disbursement float, causing a decrease in the firm’s book balance but no change in its available balance.
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collection float
Cheques received by the firm create collection float. Collection float increases book balances but does not immediately change available balances
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terms of sale
The conditions under which a firm sells its goods and services for cash or credit (e.g. credit period, cash discount and discount period, and the type of credit instrument)
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Credit Period:
the period for which credit is granted
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Other cards in this set
Card 2
Front
short term finanacial plannig and management
Back
• Basic goal: keep investment in cash and other ST assets as low as possible while operating the business efficiently and effectively
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