Short-Term Financial Needs and Working Capital
Understanding how much money is needed to sustain daily operations involves forecasting month-to-month cash inflows and outflows. Financial managers who can more accurately project the monthly gap between cash inflows and outflows will be in the best position to determine their financial needs and ensure that the lights remain on. In this Discussion, you will analyze an organization’s short-term financial needs and then propose recommendations for how the organization might best improve its cash position to meet those needs.
To prepare for this Discussion:
- Consider an example of an organization with which you are familiar and about which you have insight regarding its short-term financial needs. (Note: It could be one where you have worked or about which you have sufficient information to bring one or more examples into this Discussion, including the organization you selected for the Weeks 5 and 6 Discussion).
- Reminder: Be sure to be aware of any personal biases you may have about the organization you may discuss this week. Also, be sure to support your assertions using an evidence-based approach.
Post a synthesis of how an organization should approach its short-term financial needs, to include the following:
- Describe at least two examples of short-term financial needs that the organization either has or might have. Be sure to include specific details to support your descriptions.
- Analyze whether the organization should have low, moderate, or high amounts of working capital. Include a rationale for your assertion.
- Propose how the organization could improve its cash position to address its short-term financial needs.
Week 8 Learning Resources
Managerial Finance
Basic Working Capital Concepts
Using these resources, you will examine the concept of working capital management. When organizations evaluate their current assets and liabilities, it can be beneficial for them to apply a working capital management strategy to utilize those aspects in the best way possible. Another goal of incorporating this strategy is being able to operate more efficiently. The main ratios in focus are the working capital ratio, the collection ratio, and the inventory ratio.
· Brigham E. F., & Houston, J. F. (2022). Working capital management. In Fundamentals of financial management (16th ed., pp. 558–590). Cengage Learning.
· Bartram, P. (2013, July-August). 8 ways to … improve working capitalLinks to an external site. . Financial Management , 42.
· Moy, R. (2014, January 15). Short-term financing Links to an external site. [Video]. YouTube. https://www.youtube.com/watch?v=SkU6L-pdPIg
The Cash Conversion Cycle
The cash conversion cycle (CCC) is a measure that managers take into account to determine how long it would take to acquire cash from their investments and sales. The CCC may also be called the net operating cycle or just the cash cycle. Through these resources, you will explore the calculations and formulas involved in the cash conversion cycle.
· AccountingTools. (2021, April 17). Inventory conversion period definition Links to an external site. . http://www.accountingtools.com/questions-and-answers/what-is-the-inventory-conversion-period.html
· AccountingTools. (2021, April 11). Collection period definition Links to an external site. . https://www.accountingtools.com/articles/collection-period
· AccountingTools. (2021, April 10). Accounts payable days formula Links to an external site. . https://www.accountingtools.com/articles/days-payable-outstanding
· Good Calculators. (2021). Cash conversion cycle calculator Links to an external site. . https://goodcalculators.com/cash-conversion-cycle-calculator/
· The Motley Fool. (2016, November 15). Foolish fundamentals: Cash conversion cycle—retail Links to an external site. . http://www.fool.com/investing/value/2006/09/12/foolish-fundamentals-cash-conversion-cycle–retail.aspx
Projected Growth Requirements
Through these resources, you will explore the topic of forecasting. As part of the quarterly and annual reports provided to shareholders, companies need to develop projections for their revenue and growth. These estimated earnings are not only useful to shareholders and stock analysts, but they can also be a helpful tool for managers to use when making decisions within the organization.
· Brigham E. F., & Houston, J. F. (2022). Financial planning and forecasting. In Fundamentals of financial management (16th ed., pp. 598–616). Cengage Learning.
· Cundiff, K. (2019, March 25). Additional funds needed (AFN) Links to an external site. [Video]. YouTube. https://www.youtube.com/watch?v=kwM1Y2uHgeI
Cross Rates Between Currencies
When operating in a multinational organization, managers may need to determine the cross rate between currencies of different countries and regions. This rate represents a comparison of two currencies while using a third currency (often a major currency) as the main reference point for comparison. Using these resources, you will explore cross rates between countries.
· Brigham E. F., & Houston, J. F. (2022). Multinational financial management. In Fundamentals of financial management (16th ed., pp. 625–656). Cengage Learning.
· Javidan, M., Teagarden, M., & Bowen, D. (2010, April 1). Managing yourself: Making it overseas . Harvard Business Review, 88 (4), 109–113.
Important Documents for The Week
· Document: Module 3 Assignment Part 1 Template (Excel spreadsheet) Download Module 3 Assignment Part 1 Template (Excel spreadsheet)
· Document: Module 3 Assignment Part 2 Template (Word document
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Week 5 Learning Resources
Managerial Finance
Financial Statements and Reports
Although some publicly traded companies provide access to their annual reports on their websites, all public companies must file their audited financial reports with the Securities and Exchange Commission (SEC). This is done so through a 10K report, which is the legal and official report from which the company’s financial data is to be obtained. Using these resources, you will examine the role of financial statements for publicly traded corporations, as well as how to examine a 10K report.
· Brigham E. F., & Houston, J. F. (2022). Financial statements, cash flow, and taxes. In Fundamentals of financial management (16th ed., pp. 64–106). Cengage Learning.
· Securities and Exchange Commission. (2011, September). Investor bulletin: How to read a 10-K Download Investor bulletin: How to read a 10-K . https://www.sec.gov/files/reada10k.pdf
Measures That Illustrate Financial Health
When trying to determine a company’s financial standing, a common practice is to explore its industry and compare its financial performance to the industry averages. There are many aspects that can be used as a comparison, which can be useful for stakeholders to understand. By having a better understanding of a company’s financial health, managers become better decision makers and help drive their organization toward success. Through these resources, you will examine how financial statements can reveal the state of an organization’s financial health.
· Brigham E. F., & Houston, J. F. (2022). Analysis of financial statements. In Fundamentals of financial management (16th ed., pp. 108–128). Cengage Learning.
· 365 Careers. (2020, July 17). Dupont analysis explained Links to an external site. [Video]. YouTube. https://www.youtube.com/watch?v=hHuItcTJJcs
· IBISWorld. (2016, November 6). Financial ratios – IBISWorld industry product Links to an external site. [Video]. YouTube. https://www.youtube.com/watch?v=6-JlnqWlyoU
· FinanceWalk [Avadhut Nigudkar]. (2014, January 24). Ratio analysis, financial ratio analysis in Excel Links to an external site. [Video]. YouTube. https://www.youtube.com/watch?v=WH1afIA6sEk
· Learn to Invest. (2018, November 23). ROE DuPont analysis: How to use the DuPont equation to analyze a stock: DuPont decomposition Links to an external site. [Video]. YouTube. https://www.youtube.com/watch?v=qRBHfpyTDU8
Important Documents for The Week
· Document: Module 2 Assignment Part 1 Template (Excel spreadsheet) Download Module 2 Assignment Part 1 Template (Excel spreadsheet)
· Document: Module 2 Assignment Part 2 Template (Word document)
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Week 6 Discussion – Managerial Finance
Lakenya Campbell
Walden University
Dr. Ed
MBAX 6070
December 31st, 2025
Qualitative Assessment of Financial Performance
When assessing the privately owned distribution company of technology mentioned earlier, the qualitative aspect regarding the customer base concentration, which is one of the primary questions raised by Brigham and Houston (2022), is of the utmost importance. Although the company has upheld a high working capital discipline, a big part of its revenues was subject to a few large retail contracts. According to Brigham and Houston (2022), when a company has a large customer base, its financial health will be directly associated with the stability of the customer base. In the case of this distributor, loss of a single big contract would not just stop revenue but could also leave the firm with stocked inventory that was specifically brought in to meet the unique demands of the client. The above qualitative risk points out that despite the high profitability on paper, the absence of customer diversification in the company leads to the creation of a very delicate ecosystem where an external shock to the business of a client becomes an internal crisis of the distributor.
Impact on Financial Ratios
Liquidity and activity ratios are directly affected by this customer concentration. In particular, Days Sales Outstanding (DSO) and Cash Conversion Cycle (Kiymaz et al., 2024) are extremely sensitive to the payment patterns of this small number of large clients. In case of a cash flow crunch and delay on the part of a dominant customer, the distributor's DSO would skyrocket and strangle the cash buffer. In addition, the current ratio may be misleadingly good because of the high accounts receivable, but the nature of the assets would be affected if the main debtor becomes insolvent. Since the ratio analysis is most effective when it leads to performance insights, Biedron (2021) states that the qualitative risk of customer reliance here cautions managers that a high current ratio does not imply that there is liquidity in the real sense, as long as the receivables are not diversified. As a result, the mismatch of maturity mentioned above due to short-term debt to be used to expand the warehouse is even more risky, as the cash flow on which the underwriting bases its operations relies on a small, unstable group of customers.
References
Biedron, R. (2021, July 13). Ratio analysis of financial statements: Analyse to drive better performance. Planergy. https://planergy.com/blog/ratio-analysis-of-financial-statements/
Brigham, E. F., & Houston, J. F. (2022). Analysis of financial statements. In Fundamentals of financial management (16th ed., pp. 128–150). Cengage Learning.
Kiymaz, H., Haque, S., & Choudhury, A. A. (2024). Working capital management and firm performance: A comparative analysis of developed and emerging economies. Borsa Istanbul Review, 24(3), 634-642. https://doi.org/10.1016/j.bir.2024.03.004
