Chapter 15 - Net Working Capital
Five C's of Credit
1. Character 2. Capacity 3. Capital 4. Collateral 5. Conditions
Working Capital
Current assets, which represent the portion of investment that circulates from one form to another in the ordinary conduct of business
Net Working Capital
The difference between the firm's current assets and its current liabilities
Credit Standards
The firm's minimum requirements for extending credit to a customer.
Reorder Point
The point at which to reorder inventory, expressed as days of lead time * daily usage
Operating Cycle
The time from the beginning of the production process to collection of cash from the sale of the finished product.
Marketable Securities
To be truly marketable, a security must have (1) a ready market so as to minimize the amount of time required to convert it into cash and (2) safety of principal, which means that it experiences little or no loss in value over time. The securities that are most commonly held as part of the firm's marketable-securities portfolio are divided into two groups: (1) government issues, which have relatively low yields as a consequence of their low risk; and (2) nongovernment issues, which have slightly higher risk associated with them.
Credit Scoring
A credit selection method commonly used with high volume/small-dollar credit requests; relies on a credit score determined by applying statistically derived weights to a credit applicant's scores on key financial and credit characteristics
Marketable Securities
short-term, interest-earning, money market instruments that can easily be converted into cash.