Ch 22 Managing the Firm's Assets

manage inventory

A concentrated effort to ___ ___ can trim excess inventory and free cash for other uses.

inventory, free cash

A concentrated effort to manage inventory can trim excess ___ and ___ ___ for other uses.

cash flows

A firm's ___ ___ consists of cash flowing into a business (though sales revenue, borrowing, etc,) and cash flowing out of the business (through purchases, operating expenses, etc.).

working capital cycle

A firm's ___ ____ ____ is the flow of resources through the company's accounts as part of its day to day operations.

cash flowing into, cash flowing out

A firm's cash flows consists of ___ ___ ___ a business (though sales revenue, borrowing, etc,) and ___ ___ ___ of the business (through purchases, operating expenses, etc.).

sales revenue, borrowing, purchases, operating expenses

A firm's cash flows consists of cash flowing into a business (though ___ ___, ___, etc,) and cash flowing out of the business (through ___, ___ ___, etc.).

resources, day to day

A firm's working capital cycle is the flow of ___ through the company's accounts as part of its ___ ___ ___ operations.

lock box

A post office box for receiving remittances from customers.

sales revenue, cash receipts

Calculating cash flows requires that an owner be able to distinguish between ___ ___ and ___ ___.

balance sheet, income statement

Change in the ___ ___, increases effects on the ___ ___.

suppliers

Days in payables is a measure of how long a business takes to pay its ___.

extends credit

Days sales outstanding measures how many days, on average, that a firm ___ ___ to its customers.

capital budgeting analysis

Discounted cash flow techniques provide the best basis for decision making in ___ ___ ___.

various times, renegotiating

Financial management of accounts payable hinges on paying at ___ ___ and ___ in some cases.

quantitative, experience

Increasing numbers of small business owners are using some type of ___ measure to assess a capital investment, along with judgment based on their ___.

capital, judgment

Increasing numbers of small business owners are using some type of quantitative measure to assess a ___ investment, along with ___ based on their experience.

survive, cash flows, capital, projects, financial management

Non-financial variables that affect the decision-making process in a small company: 1. attempts to just ___ 2. the uncertainty of ___ ___ 3. difficult in estimating the cost of ___ 4. the limited size of its ___ 5. owner's lack of ___ ___ background

cash, receivable, expenses, inventory

Reflect the inflows and outflows of cash related to the working capital cycle: 1. ___ sales 2. collection of accounts ___ 3. payment of ___ 4. payment for ___

accounting return on investment,

The ___ ___ ___ ___ technique has two significant shortcomings: It is based on accounting profits rather than actual cash flows received, and it ignores the time value of money.

discounted cash flow (DCF)

The ___ ___ ___ techniques are the net present value and internal rate of return

discounted cash flow (DCF)

The ___ ___ ___ techniques compare the present value of future cash flows with the investment outlay.

short term, long term

The ___ ___ mindset of small firms may explain, why they seldom use the conceptually richer techniques for evaluating ___ ___ investments.

payback period, payback period

The ___ ___ technique has two major weaknesses: it ignores the time value of money, and it doesn't consider cash flows received after the ___ ___ payback period.

payback period,

The ___ ___ technique measures how long it will take to recover the initial cash outlay of an investment.

accounting profits, actual cash flows

The accounting return on investment technique has two significant shortcomings: It is based on ___ ___ rather than ___ ___ ___ received, and it ignores the time value of money

time value, money

The accounting return on investment technique has two significant shortcomings: It is based on accounting profits rather than actual cash flows received, and it ignores the ___ ___ of ___.

present value

The discounted cash flow (DCF) techniques compare the ___ ___ of future cash flows with the investment outlay.

future cash flows, investment outlay

The discounted cash flow (DCF) techniques compare the present value of ___ ___ ___ with the ___ ___.

net present value, internal rate of return

The discounted cash flow techniques are the ___ ___ ___ and ___ ___ ___ ___

current liability

The only ___ ___ included in the working capital cycle is accounts payable.

accounts payable

The only current liability included in the working capital cycle is ___ ___.

time value, cash flows

The payback period technique has two major weaknesses: it ignores the ___ ___ of money, and it doesn't consider ___ ___ received after the payback period.

cash outlay

The payback period technique measures how long it will take to recover the initial ___ ___ of an investment.

investment

The payback period technique measures how long it will take to recover the initial cash outlay of an ___.

Net Present Value (NPV)

The present value of expected future cash flows less the initial investment outlay.

Internal Rate of Return (IRR)

The rate of return a firm expects to earn on a project.

techniques, evaluating

The short term mindset of small firms may explain, why they seldom use the conceptually richer ___ for ___ long term investments.

working capital

Think of ___ ___ as the liquid assets that are required to run and grow the business less any credit provided by suppliers in the form of accounts payable.

cash, accounts receivable, inventory

Working capital as a firm's current assets primarily: ___, ___, and ___.

decreases, increases

Working capital cycle step 1: Purchase or produce inventory for sale. 1: ___ cash if cash in used to pay for inventory or 2: ___ accounts payable if the inventory is purchased on credit.

cash, accounts payable

Working capital cycle step 1: Purchase or produce inventory for sale. 1: decreases ___ if it is used to pay for inventory or 2: increases ___ ___ if the inventory is purchased on credit.

Purchase, produce

Working capital cycle step 1: ___ or ___ inventory for sale.

increases cash, increases accounts receivable

Working capital cycle step 2: Sell the inventory for cash, which ___ ___ or sell the inventory on credit, which ___ ___ ___.

decreases, decreases, decreases

Working capital cycle step 3: pay the accounts payable, which ___ accounts payable and ___ cash or pay operating expenses and taxes, which ___ cash.

accounts payable, cash, cash

Working capital cycle step 3: pay the accounts payable, which decreases ___ ___ and decreases ___ or pay operating expenses and taxes, which decreases ___.

decreases, increases

Working capital cycle step 4: collect the accounts receivable when due, which ___ accounts receivable and ___ cash.

accounts receivable, cash

Working capital cycle step 4: collect the accounts receivable when due, which decreases ___ ___ and increases ___.

cycle again

Working capital cycle step 5: begin the ___ ___

Days in payables

___ ___ ___ is a measure of how long a business takes to pay its suppliers.

Working capital management

___ ___ ___ is extremely important to most small companies. *No financial management process is more important and, yet, more misunderstood.

Days sales outstanding,

___ ___ ___ measures how many days, on average, that a firm extends credit to its customers.

Days in inventory

___ ___ ___ represents the number of days, on average, that a company carries inventory.

Discounted cash flow

___ ___ ___ techniques provide the best basis for decision making in capital budgeting analysis.

cash receipts

___ ___ are recorded when money actually flows into the firm, often a month or two after the sale.

capital budgeting

___ ___ techniques include accounting return on investment, payback period, and discounted cash flows.

accounts payable

___ ___, a primary source of financing for small firms, directly affects a firm's cash flow situation.

Change, effects

___ in the balance sheet, increases ___ on the income statement.

Revenue

___ is recorded at the time a sale is made but does not affect cash flows at the at time unless the sale is a cash sale.

Financial, accounts payable

___ management of ___ ___ hinges on paying at various times and renegotiating in some cases.

Nonfinancial, decision-making

___ variables that affect the ___ ___ process in a small company: attempts to just survive, the uncertainty of cash flows, difficult in estimating the cost of capital, the limited size of its projects, and an owner's lack of a financial management background

accounting return on investment technique

a capital budgeting technique that compares expected average annual after-tax profits to the average book value of an investment

payback period technique

a capital budgeting technique that measures the amount of time it will take to recover the initial cash outlay of an investment

cash flow

accounts payable, a primary source of financing for small firms, directly affect a firm's ___ ___ situation

near cash, receivables

accounts receivable are close to becoming cash, sometimes called ___ ___ or ___. Typically collects within 30-60 days following the sale.

pledged accounts receivable

accounts receivable used as collateral for a loan

capital budgeting analysis

an analytical method that helps managers make decisions about long-term investments

cash flows

calculating ___ ___ requires that a small business owner distinguish between sales revenue and cash receipts and between expenses and disbursements.

sales revenue, cash receipts

calculating cash flows requires that a small business owner distinguish between ___ ___ and ___ ___ and between expenses and disbursements.

expenses, disbursements

calculating cash flows requires that a small business owner distinguish between sales revenue and cash receipts and between ___ and ___.

accounting return on investment, payback period, discounted cash flows

capital budgeting techniques include ___ ___ ___, ___ ___, and ___ ___ ___.

discounted cash flow (DCF) techniques

capital budgeting techniques that compare the present value of future cash flows with the cost of the initial investment.

credit to customers

granting ___ ___ ___, although primarily a marketing decision, directly affects a firm's cash account.

marketing decision

granting credit to customers, although primarily a ___ ___, directly affects a firm's cash account.

cash

granting credit to customers, although primarily a marketing decision, directly affects a firm's ___ account.

managed, stockpiling

improperly ___ and uncontrolled ___ may greatly increase inventory carrying cost and place a heavy drain on the funds of a small business.

costs, funds

improperly managed and uncontrolled stockpiling may greatly increase inventory carrying ___ and place a heavy drain on the ___ of a small business.

Working Capital Management

management of current assets and current liabilities

cash flows

monitoring ___ ___ is at the core of working capital management.

current assets, short term liabilities

net working capital as ___ ___ less current ___ ___ ___ .

cash flows, receivables

some small businesses speed up the ___ ___ from ___ by borrowing against them.

borrowing against them

some small businesses speed up the cash flows from receivables by ___ ___ ___.

working capital cycle

the ___ ___ ___ begins with the purchase of production of inventory and ends with the collection of accounts receivable.

accounting return on investment

the ___ ___ ___ technique compares the average annual after-tax profits a firm expects to receive to the average book value of the investment.

cash conversion

the ___ ___ period is critical because it is the time period during which cash flow problems can arise.

cash conversion

the ___ ___ period is the time span during which a firm's investment in accounts receivable and inventory must be financed.

annual after-tax profits, book value

the accounting return on investment technique compares the average ___ ___ ___ ___ a firm expects to receive to the average ___ ___ of the investment.

cash flow problems

the cash conversion period is critical because it is the time period during which ___ ___ ___ can arise.

accounts receivable, inventory

the cash conversion period is the time span during which a firm's investment in ___ ___ and ___ must be financed.

financed

the cash conversion period is the time span during which a firm's investment in accounts receivable and inventory must be ___.

working capital cycle

the daily flow of resources through a firm's working capital accounts

accounts receivable quickly

the most important factor in managing cash well is the ability to collect ___ ___ ___.

days in payables

the number of days, on average, that a business takes to pay its accounts payable.

Days in Inventory

the number of days, on average, that a company holds inventory

days sales outstanding (average collection period)

the number of days, on average, that a firm extends credit to its customers

accounts payable

the only current liability included in the working capital cycle is ___ ___, which affects the timing of payments for inventory.

cash conversion period

the time required to convert paid-for inventory and accounts receivable into cash

accounts receivable financing,

the two types of ___ ___ ___ are pledges accounts receivable and factoring.

pledges accounts receivable, factoring

the two types of accounts receivable financing are ___ ___ ___ and ___.

production of inventory, accounts receivable

the working capital cycle begins with the purchase of ___ ___ ___ and ends with the collection of ___ ___.

cash budget

to anticipate when cash will enter and leave a business an owner must develop a ___ ___.