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A significant amount of management time in many businesses, particularly small businesses, is devoted to assuring that there will be sufficient cash to pay employees, vendors, and creditors. While the expression “Cash is King” has some truth, a solid understanding of the inter-relationships between working capital components is necessary for all businesses to succeed in the long run.

Working capital is the current assets used in a business, which are typically financed by current liabilities. While the time frame for current assets and current liabilities is typically one year, working capital management has long-term implications for many firms.

Working capital management focuses on two basic questions: (1) What is the appropriate level of current assets for a firm to carry, both in total and for each specific group, and (2) how should current assets be financed.

The course is made up of 8 modules that examine working capital management at a macro and micro level. Starting with a discussion of a firm’s appetite for risk and the implications of having too much and too little working capital, the course then explores issues related to managing types of current assets, including cash, marketable securities, receivables, and inventory. The types of short-term credit to finance current assets is then covered, followed by a discussion of the costs of short-term credit.

The course content covers working capital management topics tested in the Certified Management Accountant (CMA) Part 2 examination.

Topics include:

  • Working capital risks and strategies.
  • Cash management.
  • Cash forecasts.
  • Marketable securities.
  • Receivables management.
  • Inventory management.
  • Short-term credit.
  • Costs of short-term credit.

Course Key Concept: Working capital, current assets, current liabilities, working capital management, liquidity, risk appetite, opportunity cost, maturity matching, working capital strategy, working capital forecast, cash management, disbursement float, marketable securities, treasury bills, repurchase agreements, bankers’ acceptances, commercial paper, credit policy, default risk, factoring receivables, factoring receivables “with recourse”, factoring receivables “without recourse”, lead time, safety stock, re-order point, economic order quantity (EOQ), just in time (JIT), collateral, trade credit, short-term loans, line of credit, simple interest, commitment fee, compensating balances, trade discounts.

Learning Objectives

  • Recognize the components of working capital and calculate net working capital.
  • Explore the factors that determine the risk appetite of an organization.
  • Explore how risk affects a firm's approach to managing working capital.
  • Identify working capital opportunity costs and the tradeoffs between liquidity risk and return on assets.
  • Identify and explain the three motives for holding cash.
  • Identify methods of speeding up cash collections.
  • Recognize the different types of marketable securities.
  • Recognize the trade-offs among the variables in marketable security selections, including safety, marketability, yield, maturity, and taxability.
  • Recognize the components of credit policy.
  • Explore the impact changes in credit policy have on accounts receivable, working capital and sales volume.
  • Identify the reasons for carrying inventory and factors that influence its level.
  • Identify and calculate carrying costs, ordering costs, and stockout level.
  • Identify the different types of short-term credit, including trade credit, short-term bank loans, lines of credit, commercial paper and banker's acceptances.
  • Explore how to calculate the effective interest rate of trade discounts and calculate the effective interest rate on loans with compensating balances.
Last updated/reviewed: June 08, 2020

2 Reviews (8 ratings)Reviews

3
Anonymous Author
there are a lot of word which I don't know associate with working capital management. I'd like to recommend person who work in treasury team member.
5
Anonymous Author
Good coverage on the most relevant topics pertaining to working capital and definitely recommend as a solid intro. Suggestions for improvement: add a little more content on benchmarks (i.e. typical effective rates, that was provided in a few instances and was helpful) and summarized charts for the Marketable Securities and ST Credit options presented, and just a little information on the process/timeline to obtain financing or trade credit.

Prerequisites

Course Complexity:

No advanced preparation or prerequisites are required for this course.

Education Provider Information

Company:
Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact:
For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .
Course Syllabus
INTRODUCTION AND OVERVIEW
  2:24Course Overview of Working Capital Management
  19:07Working Capital Risks and Strategies
  quizREVIEW QUESTIONS: Working Capital Risks and Strategies
  17:21Cash Management
  quizREVIEW QUESTIONS: Cash Management
  17:44Cash Forecasts
  18:08Marketable Securities Management
  quizREVIEW QUESTIONS: Marketable Securities Management
  11:26Receivables Management
  quizREVIEW QUESTIONS: Receivables Management
  18:52Inventory Management
  quizREVIEW QUESTIONS: Inventory Management
  16:09Short-Term Credit
  quizREVIEW QUESTIONS: Short-Term Credit
  15:02Costs of Short-Term Credit
  quizREVIEW QUESTIONS: Costs of Short-Term Credit
CONTINUOUS PLAY
  2:16:12Working Capital Management
SUPPORTING MATERIAL
  PDFSlides: Working Capital Management
  PDFWorking Capital Management Glossary/ Index
REVIEW AND TEST
 examFINAL EXAM