HSM-340 Week 6 Assignment: Cash and Working Capital (graded)

Cash and Working Capital DEVRY UNIVERSITY GROUP 2 HSM 340 Table of Contents I. What are four general phases of working capital cycle ?.................................................Slides 3 II. What are the three primary sources of short-term funds ?................................................Slides 4&5&6 III. An organization’s short-term investment options for idle cash include what four areas........Slide 7 - 11 IV. Discuss the term float……………………………………………………………………Slides 12- 14 V. Reference ………………………………………………………………………………. Slide 15 The four general phases of the working capital cycle ► Acquiring cash. ► Turning cash into resources. ► Using the resources to provide services. ► Billing patients for services. The three primary sources of short –term funds Line of credit : ► This is a financial resource that is available through your business or personal bank. ► Line of credit are committed or uncommitted. ► May require assets for collateral. ► It is monitored closely by the lender Trade Credit ► It is a credit granted to manufacturers and traders ► It is mostly extended in form bill of exchange. ► Goods are delivered but payments are not made until the expiry of the credit period. ► This type of credit does not make the funds available in cash immediately. ► Buyer must have creditworthiness in the market. Commercial Bank ► The major source of working capital finance to commerce. ► Commercial banks loan money and acquire interest . ► These banks are primary sources of short –term loans. ► Loans issued by these banks can include mortgages, and auto loans etc. An organization's short-term investment options for idle cash include Treasury Bills also referred to as T-Bills Certificate of Deposit (CDs) Commercial paper (promissory note) Banker’s acceptance Treasury Bills – T Bills ► Simple and a way for the government to raise money from the public ► Short term securities with maturity dates of 1 year or less based on their date of issuance ► Options: 3 months, 6 months and 1-year maturity This Photo by Unknown Author is licensed under CC BY-SA Certificate of Deposit ► Certificate of Deposit (CDs) ► A promissory note issued by a bank ► It is a time deposit that restricts holders from withdrawing funds on demand ► If a withdrawal is made, the account owner will incur a fee This Photo by Unknown Author is licensed under CC BY-SA Commercial Paper ► It is a promissory note, pledging that money loaned will be repaid ► A negotiable promissory note (essentially an IOU) issued at a discount by large corporations ► Typically range longer than 270 days This Photo by Unknown Author is licensed under CC BY-NC Banker’s Acceptance ► Short term debt instrument showing promise of future payment to the bank ► For example, someone might write himself a check as a simple means of transferring funds from one bank account to another This Photo by Unknown Author is licensed under CC BY-SA Discuss the term Float Money within the banking system that has to be counted twice due to delays with processing checks a paid sum which, due to delays in processing, appears simultaneously in the accounts of the payer and the payee. Holdover Float and Transportation Float According to the Federal Reserve, there are two types of float: holdover float and transportation float Holdover Float – float caused by delays at the processing institution (sometimes due to backlogs or seasonal delays) Transportation Float – occurs due to inclement weather and air traffic delays, typically at its highest during the winter months Formula to calculate Float Average Daily Float Calculation For example, a company with $15,000 of float outstanding for the first 14 days of the month, and $19,000 for the last 17 days of the month will calculate its average daily float as: References ► Cash and Working Capital. (2016, Feb 29). Retrieved from