Financial Management Case Essay Example | Topics and Well Written Essays - 2500 words

Financial Management Case - Essay ExampleThese assets and liabilities ar to be cashed or spent in the ordinary course of business that is, we do not score to liquidate our company just to bring on the cash we need, and neither do we be in possession of to pay any our long-term debts now. Working capital basically is a measure of how we manage our collections and our damages. Good running(a) capital management, by lowering costs and maximise collections, contributes to maximising shareholder value, which is one of the Boards primary duties.An analysis of our current practices in this aspect of financial management has revealed the following problemsTrade receivables have increased from the desired cardinal days to the actual fifty days.Bad debts have reached 1.5 percent of total sales.We are spending 76,000 annually, equivalent to 3.2 percent of sales, for trade wind debt or receivables financing, bad debts, and overhead.We have studied two options to manage our working cap ital that can bring down our costs and bring up our collections.Summary Course of ActionWe have looked at two options Factoring ( pickaxe A) and Discounting (Option B).We summarise our findings as followsComparison of two options and current systemCurrent systemTrade debts from collections40,000 Bad debts36,000 Annual cost of debts76,000 Option A FactoringTrade debts from collections22,000 Service charges48,000 Savings on bad debts(36,000)Savings from factoring(18,000)Annual cost of debts16,000 Annual savings from Option A60,000 Option B DiscountingTrade debt savings6,400 Savings from collected bad debts12,000 Cost of discounts(9,600)Annual savings from Option B8,800 Total savings from Options A and B56,800 We have calculated that factoring will save us 60,000...This is called working capital management.Working capital is the cash that is readily addressable to the organisation. This can be derived from the corporations balance sheet by subtracting our current liabilities (short-te rm organisational commitments that needs cash payments) from our current assets (company resources that can be converted into cash in the short-term).These assets and liabilities are to be cashed or spent in the ordinary course of business that is, we do not have to liquidate our company just to raise the cash we need, and neither do we have to pay all our long-term debts now.Working capital basically is a measure of how we manage our collections and our costs. Good working capital management, by lowering costs and maximising collections, contributes to maximising shareholder value, which is one of the Boards primary duties.We have calculated that factoring will save us 60,000 annually. Discounts will save us an additional 8,800 by bringing down our bad debts and trade debts costs, even if these discounts will cost us initially 9,600. If we manipulation both options, we can save 56,800 each year, equivalent to 2.4 percent of sales.Note that combining the two options will give us a lower finger for total savings because if we use the Discounting option together with Factoring, the elimination of bad debts from availing of the latter (Factoring) option will give us only the benefit of trade debt savi