Will she?

This day’s her birthday.  Her friends were there the whole afternoon.   All had left but three when she started sharing the dilemmas of her love life and asking for guidance.  The three friends remained in tacked in their seats indulgently listening to her and thinking of their desirable counsels.  First was for her friend’s obsessions to her. Of course, she has no interest to entertain him at all.  Second… for a friend who told her she’s special yet showing no concerns for a long time now.  The sincere conversation ended fairly as expected.  She was satisfied.  Should she say no to the former and go after to the latter?

Syntheses on Working Capital Management

I.              Current Asset Management

Indeed, the objective of managing the current assets is to ascertain the suitable arrangement of current asset components (i.e. cash, marketable securities, short-term receivables, and inventories) taking into account the safety, liquidity, and profitability of the operations of an entity.  As we see, this objective is broken down into different ideas as it goes through specific sectors in current asset management.

First to note is cash and marketable securities management that involves the holding of right level of cash and marketable securities to meet the entity’s needed cash with an objective of investing these extra cash for a return, while holding enough funds to reassure future needs.  In addition, entities hold cash for not a single reason.  The reasons may be to use of cash to pay planned expenses (transaction); to keep cash for emergency purposes for some anticipated and unanticipated contingencies (precautionary);having excess funds for some investment opportunities (speculative); or keeping a certain percentage of borrowed funds (e.g. compensating balance) as required by the lending institutions (contractual).  Same with cash, there are also reasons why an entity is maintaining marketable securities such as, they serve as a substitute for cash, they are held as temporary investments, and they are built up to meet some other requirements such as tax payments or a maturing bond issues.  As much for the reason, there are also factors considered in choosing marketable securities which are the risks, maturity, and yield.  Some types of marketable securities would be money market instruments, treasury bills, commercial papers, and the like.

Second is accounts receivable management where there are plans and policies related to transactions on account and covering the maintenance of receivables at a certain forecasted level and collectability.  Its objective is to find the best level of outstanding receivable and its desirable level of bad debts.A large influence for this management is the credit policy of an entity.  These guidelines cover credit standards which refer to the minimum financial strength of acceptable credit customer and the amount available to different customer.  In other words, it measures credit quality and credit worthiness for some factors like character, capacity, capital, collateral, and conditions.  Moreover, credit policy also influences credit terms or the length credit period, collection period which refers to the procedure of the entity to collect past-due accounts, and delinquency/default.

Last given is the inventory management which aims to settle the level of inventory (i.e. raw materials, goods-in-process, finished goods, factory supplies, and merchandise) that balances the budgets of savings, carrying costs, and inventory control.  This comprises of planning and monitoring strategies and policies to satisfactorily meet production and merchandising requirements and minimize related inventory cost.Of course, it is the responsibility of the management to monitor and maintain sufficient amount of inventory to insure a smooth operation and avoid excessive and slow-moving inventory.  Inventory techniques involve inventory planning where there is a determination of quality, quantity, location, and time of ordering.  Another inventory technique is the inventory control or the regulations of inventory within a budgeted level.

Now we consider thinking that there are no exact, standard, and common plans for all entities.  All depends on the different nature of operations as well as to consider the fluctuations of the entities inflows and outflows.

II.            Financing Current Asset

There are two major challenges faced in financing the entity’s current assets.  These are (1) determining the level of short-term financing the entity should use and (2) selecting the source of short-term financing. 

Indeed, the basic factors why these arguments arise and the basic issue to be considered in choosing alternative short-term financing opportunities are

a)    The effective cost of credit (i.e. short-term debt is less expensive, short-term rates are usually lower than long-term debt),

b)    The availability in the amount needed and for the period of time.

c)    Risk (i.e. short-term debts are riskier because short-term interest rates may fluctuate and more frequent debts servicing is required),

d)    Flexibility for short-term credit is usually more flexible than long-term debt.  Short-term loans can be arrange quickly

e)    Restrictions: some lenders may execute restrictions, such as requiring a minimum level of net working capital.

In connection to these, short-term funds are acquired through either unsecured credit or secured loans.  Unsecured credit comprise of accruals, trade credit, bank loans, and commercial papers.  Secured loans consist of the pledge of specific assets as collateral in the event the borrower defaults in payment of principal and interest.

In addition, the inherent policies in which must be strategize by the management are the maturity matching that aims to match maturity of assets and liabilities; the aggressive approach which denotes that permanent assets must be financed short-term debt ; and the conservative approach saying that permanent assets must be financed by permanent capital.

Sources: Fundamentals of Financial Management by Brigham

                Financial Management 1 by Ma. Elenita Balatbat Cabrera

                Management Advisory Services Reviewer by Ma. Elenita Balatbat Cabrera

                Management Advisory Services Reviewer by  Rodelio S. Roque

Short Message for Christine

Dear Christine,

I was asked to make a short message and at once without any reluctance, I made one for you.  This is short… yes; in fact I insist this is short.  I thought of using “Christine” for more sophistication.  Bear with me.

”You’ve been a God-send my friend, and you deserve all the birthday wishes I can summon.”

Live… Love… Dream… Laugh… Cry… These maxims do not always make the world easy, but sure, these make every single life worthwhile.  Indeed, these mean a lot to someone who appreciates the true beauty of living and who, by nature, opens all possibilities and opportunities that come and hopes that someday sooner success and true happiness are just an inch away.  These principles are measured neither on how wealthy a person is nor on her multitude of companions, but on how she sees life at its best, how she handles challenges bravely, how she mingles to others with her truest heart, and most especially on how she finely loves each friends, families, and special someone she sees every single day.  All these things are things I see in you.

Christine, please don’t mind to connect the preceding paragraphs to my message.  I don’t know as well—uniqueness I guess.  All I know is that the things written are true, of course. Hope you are inspired and uplifted.

We know, these past few days, life has been unkind to you and to your family.  I want you to know that I am deeply saddened and my heart is with you for this challenge.  Christine, I know your father would wish you to be happy on your birthday.  And so would we… Be strong but don’t forget to kneel, cry for a while, and pray.

Back to the topic, I tried to reminisce the day when we first met or should I say, the day when we talked closer (but not that close) but three hours passed, I could not remember a detail.  I guess that is the true glance of friendship: remembering nothing yet feeling something. Whew...  I admit we’re not that close but I am very thankful that you are making and marking part of what I am in this college life.  You may not believe, but I am learning from you (Learn from me also. I anticipate that I have imparted something to you even a bit... grasp it, sense it, use it in a sentence, I mean, use it, as how I use yours).  I hope our friendship will last for a lifetime together with our other friends (enumerate...). I wish you more fruitful years to come. Go and multiply… I mean multiply your kindness to others.  Do your best always…  God bless you… Stay the same… Believe that you are so beautiful…  Move like a lady now…  Smash!!!

Without further ado, in short, HAPPY BIRTHDAY CHRISTINE!!!