Short-Term Asset Management and Strategic Management Concepts - Essay Example

Short-term Asset Management Short-term Asset Management Introduction Short-term asset management is one of the critical aspects that any organization should take into serious consideration. The success of any organization in the competitive business front requires proper financial planning. Financial planning is a complex aspect, and only organizations that register success in the way that they determine worthwhile investments are likely to succeed. In any case, businesses exist with the hope of making profits. Therefore, managing finances is critical as it ensures that the organization can make critical financial decisions, and only invest in worthwhile venture. Many companies that do not understand the salient need for constant financial management overview often plunge themselves into venture that only result to losses. Asset management has been the focus of many authors who seek to impart businesses with the relevant knowledge and guidelines required for ensuring that the business can succeed and register high profit margins. Assets are the only hope for any business as they are responsible for enabling the business make profits. The focus of this paper will be on the management of short-term assets. The paper will offer descriptive presentation of the commonly used strategies in short-term asset management. Definition of short-term assets Short term assets have been described as the assets of any organization that are subject to the conversion of cash within a short period, especially one year. They form a remarkable percentage of the company’s total assets. Short-term assets have been categorized into three classes. One of these categories is the inventory, which denotes the raw materials of any organizations, as well as other materials that can be used in the process of developing the final product. The management of the inventory denotes the proper monitoring of orders placed and the received supplies, and other factors that define the reception of the ordered materials. In addition, liquid assets such as cash and other identifiable assets that are convertible into cash also belong to this category of liquid assets. Any organization that intends to carry out an effective asset management should consider them. Accounts receivables, as they denote cash owed to the company because of goods that have been sold already, form the third category o short-term assets. Therefore, they need effective management. Worth noting is the fact that commercial papers and promissory notes also fall under the category of short-term assets, as the timelines defined on them do not exceed a year. Importance of the study As highlighted above, asset management is very critical for any organization that intends to thrive in the rigorous business market. There is ardent need for organizations to identify their assets, before embarking on the management process. In the case of short-term assets that have been described as responsible for a third of any the organization’s investment it is critical to understand how they operate. Therefore, it is essential to carry out a research that seeks to define the different strategies used by different companies as they strive to undertake effective asset management. A business should exhibit a salient understanding of its short-term assets, and identify their values, as such are subject to the changes that are evident in the business world. Carrying out a study that seeks to gain deeper understanding of how businesses can manage short-term assets is a sure way of helping the business to have the required foundational knowledge prior to making any decisions concerning investments. The fact that investments require large sums of money indicates that it is only wise for the organization to take the required measures to ensure that it exhibits ardent understanding of the dynamics that govern the company’s assets. This is a critical field of study for many economists in the globe today. Moreover, companies are outsourcing financial experts to carry out asset management and be able to model future rends concerning these assets. Businesses also have liabilities classified as both long-term and short-term. Since liabilities involve costs incurred without the business expecting any returns, there is need to establish a balance between liabilities and short-term assets. It has been the focus of many organizations in the glove to establish a matched balance between an organization’s liabilities viewed as short-term with the identified short-term aspects. Without a close analysis, it would prove impossible to strike such a balance. Therefore, the need to match the two is an additional factor that makes the study asset management a critical subject. Purpose of the Study The study will carry out an extensive literature review to determine the available literature that describes the theoretical frameworks that govern short-term asset management. the extensive review of the available literature should offer advanced understanding of the existing strategies that have been identified by many financial experts, and that have defined the core of short-term asset management. One of the outstanding objectives of the study is the identifying the different categories of short-term assets, and how such categories are managed in that specific category. Moreover, the study will also present an overview of some of the approaches that have been identified by experts as invaluable guidelines in short term asset management. Other objectives will identify the consequences of the failing to manage short-term assets effectively. Similar to any other failed managerial department, there are consequences that the organization must bear if does not fall short in the management of the existing short-term management. Moreover, the study will also seek to understand some of the common challenges that organization face because they lack the capacity of asset management. Although short-term assets may be viewed lightly, they represent a critical element that may fuel the collapsing of an organization, in other times the organization may plunge itself into a slugging investment. An additional objective of the study will seek to identify some of the assumptions and the theoretical frameworks that are used in matching the short-term liabilities and assets. The criticality of addressing these objectives is the fact that short-term asset management aims at improving profitability. Analysis of Short-term Asset Management As highlighted above, some of short-term assets that needs to be managed by any organization are the inventory, liquid assets and the accounts receivables. The sole objective of managing short-term assets is to ensure that the wealth of any organization is maximized. Effective management of the inventory denotes the management of raw materials, work that is still under completion, as well as finished goods waiting finishing. In other cases, the inventory denotes all the supplies received by the organization as the final produced goods. Understanding the diverse definition of the inventory ensures that all the factors that govern all the items denoted by the term inventory require management on short-term asset management. On the other hand, the accounts receivables denote any pending payments for the goods that have already been sold. This is the case if the payments are due for payment in the span of one year. many asset managers often seek to identify the date due for payment Role of technology in the management of the inventory Since there multiple aspects of the inventory that need proper monitoring, organizations have adopted the use technology in a bid to introduce effective inventory management. There is need to monitor the available raw materials, the cost of placing orders for more materials, carrying costs and other pertinent financial implications. Carrying costs denote the storage, insurance, prices in the market as well as lost opportunities for investment. Without doubt, the management of the inventory also requires a careful tracking of the manufacturing process and the different costs involved. Delayed manufacturing often translates to a low utilization of the assets, and effective short-term asset management takes into consideration the process from acquiring the materials, through the manufacturing, and the period taken by the finished products before they penetrate into the market. The costs considered in short-term management under reference to finished goods involve the total cost required to establish an operational manufacturing run. The consideration of the stock out cots is also because a business should have realistic view of the assets. The amount of the possible benefits accrued from the minimized costs is evidently an interest in the management of the inventory. During time of certainty, it is much more possible fir any organization to determine many of the costs that define the inventory. This is the case because the exact quantity in reference is known, and that makes it much easier for the estimation of the different costs correctly. However, there are situations that compel an organization to make inaccurate estimates that can serve as guidelines in the management of the inventory. In such cases, some of the outstanding assumptions made is that a constant demand of the finished product does exist. Moreover, an organization assumes that demand can be subject to certain determination. The model of the economic order quantity is one of the critical aspects in the management of the inventory in any organization. This is the case because of the evident understanding described to make the estimation of costs much easier. Aftyer successful estimation of the incremental costs, then the asset manager ventures into the approximation of the quantity discounts. When determining the costs involved in the acquiring of diff On the other hand, time is a major factor to be considered in order to estimate the value of money over time compared to present. Factors of inflation and money rates are taken into account and therefore the benefit for the whole investment is calculated concerning present value of money. In net present value, it assumes that funds will be reinvested in order to get back the discount rate. The goodness with this technique is that the company is able to plow cash at a mark down rate. On profitability index, the higher the profit index consequently the financial benefit is high. It is determined by the current value of expected cash flow over the initial investment. Comparing the various investments in the company the firm should settle for one with high profit index. This criterion is really simple and easy to use in the organization, it not as complicated as others may be. Profitability index technique can be a very essential technique when appraising independent project though it can really be challenging when doing limited investments. It is one of the critical aspects adopted in short-term asset management, as it should ensure that the organization registers profits, even when it invests in short term ventures. Evidently, a close monitoring of short-term assets requires both expertise in analysis, both qualitative and quantitative, which is carried out in a bid to determine the ventures that are worth an investment. This evaluation is necessary because firms depend on cash flows and outflows. The challenge with cash inflow is that a period for the benefits is not specified and cash outflows are dependent on time of stock outs. In short-term asset management, it is critical to , foster profits and revenue is an urgent aspect. The organization can add new service line in order to cater of a diverse majority, such as orthopedic, cardiology and other lines. This will entail research in the market in order to identify which service stands to offer the most referral. Another way of increasing profits and revenue is cutting cost and reducing the supply cost by asking for discounts from suppliers. A specific strategy option of growth that will increase revenue and profits are merger and acquisitions. Internal rate of return is where comparison on long-term investments against other short term investments is made. The percentage of profit expected at the end of the period divided by expenses incurred is calculated; the rate of return is then realized. The rate realized, compared to other rates of return from other investments, gives the company a clear decision on what to invest in depending on the one with the high payoffs. This method is mostly used in capital budgets because it gives an expected amount to be earned on the investment. This method does not differentiate between investing and lending (Phadtare, 2011). Payback period helps the company to determine the investments on which to take up depending on the duration it will take the company to recover what it has invested in the given project. This technique is best suited when the duration of payback is less because the earlier the recovery of funds the better since it will facilitate in investing otherwise. Payback period does not take into consideration any other factors in the market like inflation. Most investing companies less prefers this technique because it is very shallow in laying out factors that will lead to a loss or profit. There is a high risk also when the payback period is prolonged. The adoption of different databases in a bid to exhibit effective management of the inventory is one of the critical aspects of modern management. Database systems are cataloged or classified on the basis of how they represent data, or data model (Phadtare, 2011). Sketchily arguing, these data models are further branded into object-oriented and record-oriented models. This paper will identify and analyze the types of database systems that are needed by a shoe selling organization, the cost effectiveness of implementing the databases, and finally, present a discussion of factors that the organization should put into consideration before implementing the database. The required database will be specifically for the specifically for keeping financial records, inventory records, and general-purpose records. For this reason, the organization will have to prefer the record – oriented model type of database system. There are three harmonized record – oriented database models namely; network databases, hierarchical database, and relational databases. Moreover, the adoption of CPFR software, which consists of different roles can be a critical tool in the effective management of the inventory. These are; forecasting, planning procurement, supply, and replenishment modules. The adoption of CPFR reduces cost of production. This is due to reduction of roles because of multitasking that has saved time accomplishing more within a short time frame. Any company focusing ahead should consider incorporating this software. It predicts demand as well as possible difficulties while offering solutions (Phadtare, 2011). A close analysis of effective inventory analysis and management reveals the evident need to schedule different operations in a bid to ensure that there is limited inventory holding. Scheduling operations can be long- range; this entails annual or biennial plans. General in nature, they categorize resources basing on average hours and units. They determine the medium - range plans that subsequently relate short- range plans. Medium –range are usually six to eighteen months and lastly, short-range plans covers a few days depending on the type and size of firm. The former determines major projects such as constructions, and capital equipment acquisition. While the second focuses on minor changes like employment, the last one gives detailed, specific, and exact quantities weekly, daily, and hourly basis. An additional aspect of the short-term asset management is the preparation of complete and accurate financial reports (Phadtare, 2011). Effective financial reporting according to accounting policies indicate that asset managers need to report the investment into different types of assets with accuracy. There is no distortion that should be used or any altering of financial statements but rather analysis of short-term investment should be highlighted with integrity standard. Conclusion Asset management has been the focus of many authors who seek to impart businesses with the relevant knowledge and guidelines required for ensuring that the business can succeed and register high profit margins. In any case, businesses exist with the hope of making profits.. Financial planning is a complex aspect, and only organizations that register success in the way that they determine worthwhile investments are likely to succeed. Therefore, managing finances is critical as it ensures that the organization can make critical financial decisions, and only invest in worthwhile venture. , some of short-term assets that needs to be managed by any organization are the inventory, liquid assets and the accounts receivables. The sole objective of managing short-term assets is to ensure that the wealth of any organization is maximized. One of these categories is the inventory, which denotes the raw materials of any organizations, as well as other materials that can be used in the process of developing the final product. References Phadtare, M. T. (2011). Strategic management concepts and cases. PHI Learning Pvt. Ltd.. Read More