Assignment Details
The components of a firm’s working capital are cash, accounts receivable, inventory, and accounts payable. Any chief financial officer’s (CFO’s) objective is to ensure that current assets less current liabilities—known as net working capital—is a positive number while also not having an excess of money tied up in nonproductive activities.Write a memo to your CFO about the following:Answer preview:Managing the company’s components of the working capital prudently is a very important step to ensure that the company does not go bankrupt. This process can be a big challenge especially if the organization operates internationally. Organizations can easily become bankrupt as they run out of the cash reserves thus being unable to meet the very important current payment obligations within the company. An organization that operates in various places internationally may be profitable but still face the risks of running out of cash due to the increased capital requirements that are needed to finance increased investments in accounts receivables and inventories as the company seeks to grow (Madura, 2006). Therefore, for an organization with international business operations, it is very critical to prudently manage the two components of the company’s working capital namely accounts receivable and inventories in order to avoid chances of bankruptcy.Words:650
