Mba 540 Risk Investment Decision
...of Phoenix
MBA/540 Maximizing Shareholders Wealth
January 22, 2008
Capital Budgeting
Cash management involves forecasting, receiving, controlling, disbursing, and investing funds from a company's operation. Effective cash management can help to improve liquidity, increase cash flow, reduce cash outflow and increase the yield on idle funds (Cash Management, 2007). The rapid growth of businesses in the last two decades requires financial managers to be creative in the way he or she provides adequate financing for companies. Rapidly increasing sales may cause increased pressure for inventory and receivables buildup that can drain a company's cash resources. According to Block & Hirt, 2005, "
a large increase in sales creates an expansion of current assets, especially accounts receivable and inventory" (p. 1). Financing can occur through the firm's retained earnings but most often the firm's internal funds will not provide enough financing, therefore external funds must be found. As sales grow, the greater the probability that the majority of the financing will be from external sources. The funds may come from the sale of common stock, preferred stock, long-term bonds, short-term securities, bank loans, or from combinations of short and long term fund sources (Block & Hirt, 2005).
Asset Growth
Current assets change daily, if not hourly, and managerial decisions must be made. Working capital management includes the financing and management of the current assets of the company. Financial managers devote more time to working capital management than to any other activity. There can be no delay in action regarding short-term decisions on working capital because those decisions may determine whether the company will get to the long term. The key to current asset planning is the ability of...
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