Capital Management Presentation

Capital Management


Table of Contents

Title SlideTable of ContentsIntroductionEffective Working Capital Management TechniquesAlternative Capital ProjectsRisks Associated with Capital ProjectsDecision-making Factors in Lease Versus BuyEffect of Financing Strategies on Cost of CapitalBenefits and Risks of Debt FinancingConclusionReferences

Capital ManagementFinancial strategy which aims to maintain satisfactory levels of:Currents AssetsCurrent Liabilities Working Capital As such, a firm is able to:Meet its obligations when they fall due Sustain adequate cash flows(Bhattacharya, 2014).

1) Intersection of Carrying Cost and Shortage Cost.Optimal where the carrying and shortage costs are intersecting. 2) Effective Inventory Management.An optimal level of inventory reduces costs drastically.For example, the just-in-time technique.(Bhattacharya, 2014).

Effective Working Capital Management Techniques

Effective Working Capital Management Techniques Continues;

3) Cash BudgetingEstablishes a balance of surplus and deficiency of cash. Done through valuing incomes and expenses. Encourages speedy collection of debts and bargaining for relaxed credits.4) Working Capital Financing PolicySelects the best financing option to finance working capital. Depends on demand and season.(Bhattacharya, 2014).

Alternative Capital Projects

Alternative capital projects

Risks Associated with Capital Projects

Mitigating Risk of Capital Projects

Capital budgetingEvaluate the value of the projectDetermine if the potential value is worth the risk of the investmentFinancial risk analysisDetermine production level needed to break even on the project.

Decision: Lease vs. Buy

LeasingMay be more feasible for an organization with cash deficienciesDoes not have to go through capital budget processMaintenance should be provided by the lessorRent is a deductible business expenseMay be desirable for technology related assets

Decision: Lease vs. Buy

BuyingIf borrowing costs are reasonable, buying capital outright may be achievableIn the long run, payments are less if buying versus leasingIf purchasing a building or land, you may gain appreciation in the value of the propertyYou will have more control over the item/propertyYou may save more in taxes by depreciation over time

Identify the effect of financing strategies on cost of capital

Effects of financing strategies on capital of costs continues:

Benefits of Debt Financing

Keep ownershipKeep management controlInterest payments tax deductibleTaxes lower interest rateAvailable to all businessesBuilds credit score

Risks of Debt Financing

Future financing limitationsCollateralLack of reinvestments



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