WORKING CAPITAL MANAGEMENT

A Written ReportPresented to the Faculty of the College of Business Administration

Polytechnic University of the PhilippinesSta. Mesa, Manila

In Partial Fulfillment of the Requirements for the CourseBachelor of Science in Business Administration

by

Blanco, NikaCaballero, Eileen

Cortez, KevinFerrer, Nasser

Lago, RyanPaliza, Janno

Sunggayan, Jaspher

August 7, 2014

TABLE OF CONTENTS

I. Working Capital Management

(Nika Blanco & Kevin Cortez)

A. Cash Management.............................................(Nasser Ferrer)

B.Receivable Management.....................................(Eileen Caballero)

C. Inventory Management......................................(Janno Paliza)

D. Current Liability Management.............................(Ryan Lago & Jaspher Sunggayan)

I. Working Capital ManagementWorking capital, being the lifeblood of an organization, needs to be

efficiently and effectively managed so that the organization may optimize its operations, maximize its growth potential, and attain its desired financial position.

Working Capital Management DefinedWorking capital management refers to the efficient and effective utilization

of working capital to attain predetermined objectives of an organization relative to

profitability of operations, liquidity of financial resources, and minimization of risks

and company costs. It may also defined as the administration and control of

current assets and current liabilities to maximize a firm’s value by achieving a

balance between profit and risk.

Trade-off between Profitability and Risk. In managing working capital,

there is a trade-off between in firm’s profitability and its risk. Too much working

capital can reduce the firm’s profitability because of additional financing charges

(or interest expense) and the opportunity cost of capital tied up in the firm’s

assets. On the other hand, inadequate working capital expenses the firm to the

risks of not being able to pay its bills as they fall due.

Working Capital Defined; Its ConceptsWorking capital, is the difference between current assets and current

liabilities. In other words, it is the amount of current assets left after providing for

current liabilities. As such, it is the amount of current assets (or the aggregate

cash, marketable securities, receivables, inventories, prepaid expenses, and

other current asset items) financed by long-term capital (long-term debt and

stockholders’ equity) of the business. Thus, considering the above given

definitions, it is the amount of term capital that is made to revolve in conducting

operations and serves as the lifeblood of a company.

Concepts of Working Capital. The term working capital is generally used

to refer to the excess of current assets over current liabilities (or net current

assets). Sometimes it is used as referring to current assets. Under the latter

concept of the term, the difference between current assets and current liabilities

is referred to as net working capital.

In as much as working capital is the excess of current assets over current

liabilities, it must be equal to the amount of current assets financed by long term

sources of funds. In other words, currents assets provided by short-term sources

of funds do not affect working capital.

Relevance of Working CapitalA business concern uses working capital in conducting operations that is

in making goods and services available to customers and clients and in paying

for operating salaries (salaries, advertising, rentals, etc.) Working capital is made

to revolve from cash to inventories and services and then to receivables or

directly back to cash. Because of this, it is called the lifeblood of an organization.

Plant, property and equipment provide the structure.

At the start of business operations, working capital may be wholly in the

form of cash. In as much as it is made to revolve in conducting operations, at any

point in time of organization’s existence, it would be partly in the form of cash,

receivables, inventories, prepaid expenses and other current asset items.

DUGTUNGAN TO.

B. Receivable ManagementReceivable management refers to the formulation and administration of plans and policies related to sales on account and ensuring the maintenance of receivables at predetermined level and their collectability as planned.

Objective of Receivable ManagementThe objective of receivable management is to maintain receivables at a

level that will result in a combination of turnover and profit rates that will

maximize the over-all return on investment in business entity. A high level of

receivables exposes a company greater risk from uncollectible accounts,

more financing charges and greater opportunity cost arising from the capital

tied up in receivables. On the other hand, a very low level of receivable may

have its adverse effects on sales volume and gross margin. This is because

longer credit terms attract more customers and the gross margin on credit

sales far exceeds that on cash sales.

Determinants of the Size of Receivables

The size of investment in receivables is affected by the following factors:

1. Terms of sale

2. Paying practices of customers

3. Collection of policies and practices

4. Volume of credit sales

5. Credit extension policies and practices

6. Cost of capital

GANITO PO YUNG FORMAT.