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Financial Liquidity Management

Financial Liquidity Management. Financial Liquidity Management. E-mail: GRZEGORZ.MICHALSKI@UE.WROC.PL www: HTTP://MICHALSKIG.UE.WROC.PL/ Mobile: 0503452860 5 meetings + 1 exam (test) Next meeting: 12 th March.

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Financial Liquidity Management

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  1. Financial Liquidity Management

  2. Financial Liquidity Management • E-mail: GRZEGORZ.MICHALSKI@UE.WROC.PL • www: HTTP://MICHALSKIG.UE.WROC.PL/ • Mobile: 0503452860 • 5 meetings + 1 exam (test) • Next meeting: 12th March. • G. Michalski, Effectiveness of investments in operating Cash, Journal of Corporate Treasury Management, ISSN: 1753-2574, vol. 3, iss. 1, December 2009, p. 43-54. • G. Michalski, Inventory Management Optimization as Part of Operational Risk Management,Journal of Economic Computation and Economic Cybernetics Studies and Research , ISSN: 0424-267X, vol. 43 nr 4/2009, p. 213-223.http://ssrn.com/abstract=1562699 • G. Michalski, Operational risk in current assets investment decisions: Portfolio management approach in accounts receivable, Agricultural Economics , 54/2008(1), ISSN: 0139-570X, 2008, s.12-19.http://ssrn.com/abstract=1562672

  3. Short-term Financial decisions – NWC policies. Flexible or Restrictive policy • The size of the firm’s investment in current assets is determined by its NWC financial policies. • Flexible policy actions include: • keeping large cash and securities’ balances; • keeping large amounts of inventory; • granting liberal credit terms. • Restrictive policy actions include: • keeping low cash and securities’ balances; • keeping small amounts of inventory; • allowing few or no credit sales.

  4. Costs of Investments in Working Capital • Need to manage the trade-off between carrying costs and shortage costs. • Carrying costs increase with the level of investment in current assets, and include the costs of maintaining economic value and opportunity costs. • Shortage costs decrease with increases in the level of investment in current assets, and include trading costs and the costs related to being short of the current asset. • For example, sales lost as a result of a shortage of finished goods inventory.

  5. Working Capital [WC] & WC financing Alternative Asset Financing Policies

  6. Working Capital [WC] & WC financing Alternative Asset Financing Policies

  7. Working Capital [WC] & WC financing Alternative Asset Financing Policies

  8. PROFIT RISK

  9. Example NWC-1a.

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