Académique Documents
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4th edition
Dr Ruth Bender
Chapter 20
Learning objectives
1. Identify the components of working capital generated from a
companys business model, and understand the impact of this on its
growth and value potential.
2. Select appropriate financing strategies for a companys working
capital needs.
Stock manufacturing/
holding period
Operating Cycle
Receive cash
Buy goods
Sale
Manufacturer
Supermarket
Consultancy
Inventories
Receivables
Payables
Creditors
more attractive
opportunities elsewhere
Overdraft
Funds
needed
Cash on deposit
Long-term debt
Equity
Time
Company
1 January
Movement of goods/services
Send invoice for 1,000
Send copy invoice
2 January
Commission paid 10
Funds deposited in factoring account, 800
31 March
Payment of invoice 1,000
Payment of balance of funds 200
Interest paid on 800 borrowed for 3 months
at 10%, 20 (actually charged on a daily basis)
10
FacCo
Customer