Capital Management
HCS/385
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).
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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).
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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
Conclusion
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References
Bhattacharya, H. (2014). Working capital management: strategies and techniques. PHI learning pvt. Ltd.Bond street. (2018) 6 advantages of debt financing. Retrieved from Http://bondstreet.Com/blog/advantages-of-debt-financing/.Capital project evaluation(2018). Retrieved from https://smallbusiness.Chron.Com/capital-project- evaluation-49845.Html Find law (2018). Retrieved from https://smallbusiness.Findlaw.Com/business- operations/factors-to-consider- lease-or-purchase-of-a-facility.HtmlKokemuller, neil. (2018). What are the risks of debt capital financing. Retrieved fromhttps://smallbusiness.Chron.Com/risks-debt-capital- Financing-66407.Html
References
Lumen boundless finance. 2018. Retrieved from https://courses.Lumenlearning.Com/boundless- finance/chapter/the-basics- of-the-cost-of-capital/Rodeck, D. (2018). Chron. Retrieved from https://smallbusiness.Chron.Com/factors-increase-riskiness- capital- budgeting-project-15829.HtmlInvestopedia(2018). Retrieved from https://www.Investopedia.Com/terms/b/breakevenanalysis.AspInvestopedia. (2018). Factors affecting the cost of capital. Retrieved from https://www.Investopedia.Com/exam-guide/cfa-level-1/corporate- finance/factors-affecting-cost-of- capital.AspUniversity of phoenix. (2017). Course strategy guide. Retrieved from university of phoenix, HCS385 website
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