Impacts of Working Capital

Close to 50% of the typical industrial and retail firm’s assets are held as working capital. Many newly minted college graduates work in positions that focus on working capital management, particularly in small businesses in which most new jobs are created in today’s economy.

To prepare for this Discussion: Shared Practice, select two of the following components of working capital management: the cash conversion cycle, the cash budget, inventory management, and credit policies. Think about scenarios in which your selected topics were important for informing decision making. Be sure to refer to your Learning Resources for this week, research and your professional experience on working capital concepts to help develop your scenarios.

:

  • Explain how the first selected topic impacted an organizational decision.
  • Explain how the second selected topic impacted an organizational decision.

 

Learning Resources

Required Readings

Brigham, E. F., & Houston, J. F. (2022). Fundamentals of financial management (16th ed.). Cengage Learning.

  • Chapter 16, “Working Capital Management” (pp. 552-591)

    In Chapter 16, the authors explain the importance of working capital management, i.e., managing current assets and current liabilities to protect profitability. In addition, they explore credit instruments and policies in terms of their impact on working capital, sales, and profits.

  • Chapter 17, “Financial Planning and Forecasting” (pp. 592-617)

    In this chapter, the authors discuss the importance of strategic planning and the central role that financial forecasting plays in the firm’s overall planning process.