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Date Submitted: 01/04/2011 05:45 PM
Working Capital 1
Working Capital Case Study
Learning Team B
University of Phoenix
FIN 320
Lusine Mirzakhanyan
June 14, 2004
Working Capital 2
Making recommendations for financial decisions the organization could pursue based on its working capital situation is a very challenging process that all financial managers are tasked with. Alternative methods of financing provide hundreds of billions of dollars to businesses today. Companies are now expanding too rapidly for traditional funding. As a result, they cannot find the financial resources they need to continue to grow and operate successfully (Business Finance 2006). Most businesses cannot finance the operating cycle (accounts receivable days + inventory days) with accounts payable financing alone. Consequently, working capital financing is needed. This shortfall is typically covered by the net profits generated internally or by externally borrowed funds or by a combination of the two. The five most common sources of short-term working capital financing are equity, trade creditors, factoring, line of credit, and short term loan. Working capital has a direct impact on cash flow in a business. Since cash flow is the name of the game for all business owners, a good understanding of working capital is imperative to make any venture successful. In addition to analyzing the average number of days it takes to make a product (inventory days) and collect on an account (account receivable days) vs. the number of days financed by accounts payable, the operating cycle analysis provides one other important analysis. Recommendations to Ford Motor Company would be to have the vendors hold the inventory as long as possible, so they burden the expense and time to reduce the turnover ratio. This will free up more cash to assist in financing other area of the organization. This type business has been very successful for companies like Dell and Wal-Mart.
The operating cycle is 244 days and this...