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btain funding through this method is that EHC should have an average operating margin greater then 0% over the last three years along with a debt coverage ratio greater than 1.25x. the third option is to go for sourcing investment from private banks, which obviously come with a higher rate of interest (4.50%) compared to the other available options. Further, there is a difference in prepayment limitations in this case at 2% of the principal amount.
The inflow from operating activities totaled nearly $50 million. However, the high operating expenses to the tune of $40 million means that EHC is left with a mere $497,000 in terms of net income. This is insufficient to fund the proposed expansion worth $75 million nor is it adequate to manage the related loan repayment increases in case the required funds are sourced from outside.
The cash conversion cycle (CCC) will help determine the period up to which EHC will not be able to seek cash in case an increase in investment towards expansion is initiated in a bid to offer a wider range of services. CCC is this a measurement of the liquidity risk associated with any proposed initiative towards growth.
Clearly, CCC is negative which means EHS is highly dependent on collecting cash from customers before paying suppliers and for the maintenance of equipment. Although this represents a strict policy of collections, this approach is not sustainable in the long run and the company will not be able to consider any expansion in this setup.
Amongst the three options available, it is recommended to opt for low tax revenue bonds as it comes with a manageable rate of interest and moreover, such bonds come from governmental bodies, thereby having the least risk associated with them. the advantage of a revenue bond also arises from the fact that repayment is done solely from the revenues generated by the new expansion, which will facilitate easy book keeping and have the least influence on EHC’s management of existing
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(Alternative Working Capital Policy Essay Example | Topics and Well Written Essays - 750 Words)
“Alternative Working Capital Policy Essay Example | Topics and Well Written Essays - 750 Words”, n.d. https://studentshare.org/miscellaneous/1562757-alternative-working-capital-policy.
Working Capital Management Introduction Working capital management is a complex process through which a company ensures that it maintains sufficient cash inflows in order to meet its short term debt obligations as well as operating expenses. In other words, the system of working capital management intends to establish a relationship between a firm’s current assets and current liabilities.
The study will look at the different advantages that are accrued by financial institutions in relation to their account receivables and their loan lending capacities. It will look at the financial growth and maturity of Citibank Indonesia, and the various strategies incorporated to deal with sovereign risk limits.
Mayo Stores, the world’s leading retailer, is the major customer of Lawrence Sports. The Lawrence’s suppliers are Gartner Products and Murray Leather Works. This paper will suggest an alternative working capital policy for Lawrence Sports in order to reduce several future difficulties.
1. LIFO vs. FIFO LIFO (last in, first out) and FIFO (first in, first out) are two different ways of accounting for the value of unsold inventory. The FIFO method considers unsold inventory to be that which has been acquired most recently, and the LIFO method uses the goods bought earliest as the unsold inventory.
The short term assets and liabilities of a company i.e. Current Assets and current liabilities are an important determinant of a company's operational performance. Hence a company should pay a lot of attention to managing its current assets and current liabilities in order to remain in the business in a profitable manner.
The working capital(Aryeetey,1998) is also one of the many financial management tools used by the financial statement users to determine whether the business will continue to survive in the near or even far away future years. Liquidity is described as how "cash" an item in the financial statement is because liquidity is equated with available hard cold money.
Lawrence Sports has two suppliers, Gartner and Murray. Gartner supplies Lawrence Sports with 70% of its materials and is therefore very important to the success of the company. Lawrence Sports is Murray's major customer comprising of 75% of sales for Murray and therefore is willing to do anything to please Lawrence Sports to keep them as a customer.
rent working capital policies of the firm can be mostly considered as conservative in nature as Family Dollar employ most of its own internally generate funds to finance its working capital needs. Such practice may be healthy as the firms often attempt to save finance cost if
Working capital management is an important element in this respect because it is crucial in successful organizational operations. Such management covers the interaction of the assets and liabilities, which are classified in two departments:
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