Working Capital Management: Applications and Case Studies

PRAISE FOR WORKING CAPITAL MANAGEMENT “Any new book by James Sagner is a welcome addition to one’s library: always informative, illuminating, and entertainingly written with lots of practical examples and case studies. Working Capital Management provides a comprehensive review of all of the elements that contribute to managing a company’s liquidity most effectively. Many will wish this book had been available in 2008! An excellent, worthwhile read.” —MICHÈLE ALLMAN–WARD, Managing Partner, AWA Consulting, Inc. “I have known Jim Sagner for four years, and he is a superb author. This is a must–read for bankers.” —HERBERT JACOBS, Coauthor of Handbook of Corporate Lending “The discussion in this book applies real–world concepts to the full array of working capital issues. Dr. Sagner has extensive banking, consulting to Fortune 500 companies, and university teaching experience, which he demonstrates in the text and the accompanying cases.” —EDWARD BANAS, Former Treasurer of PayPal Inc., President of PayPal Asset Management Company, CFO of PayPal Funds

Preface Chapter 1: Concepts in Working Capital Management Working Capital Concepts Improving Working Capital Management The Significance of Working Capital Cost As the Working Capital Issue Applying These Ideas to a Real Business: Best Buy Chapter Content Summary Notes Chapter 2: Working Capital Ratios and Other Metrics Ratio Analysis Other Ratios and Their Application Other Metrics Benchmarking General Problems in the Use of Ratios and Metrics Summary Notes Chapter 3: Cash — Management and Fraud Prevention Forms of Cash Paper Transactions: Lockboxing Paper Transactions: Depositor Accounts Paper Transactions: Controlled Disbursement Electronic Transactions Float and Cost Issues Summary Notes Chapter 4: Cash — Credit and Short–Term Financial Instruments Developing a Short–term Forecast Cash Budgeting Credit Financing Short–term Investments Summary Notes Chapter 5: Managing Bank Relationships The Changing Financial Landscape Bank Relationship Management Cash Mobilization in a Multi–Bank Network General Terms of Credit Facilities Specific Terms in Credit Facilities Ongoing Bank Relationship Concerns Summary Notes Appendix to Chapter 5:  Selecting Non–Credit Banking Services The Request–for–Proposal RFP Evaluation Chapter 6: Accounts Receivable and Working Capital Issues Elements of Receivables Management Float Opportunities in Managing Receivables Receivables Cycle Monitoring: Ratios Receivables Cycle Monitoring: The Aging Schedule Sales Financing Credit Reporting Terms of Sale Invoice Generation Asset–Based Financing Debt Collection Agencies Summary Notes Chapter 7: Inventory and Working Capital Issues Elements of Inventory Management Inventory Cycle Monitoring: Ratios Inventory Cycle Monitoring: Metrics The Purchasing Function Analyzing Purchasing Activities EOQ and JIT Work–In–Process ABF: Inventory Financing Summary Notes Chapter 8: Payables and Working Capital Issues Elements of Payables Management Payables Cycle Monitoring: Ratios The Accounts Payable Function Payables Using Internal Processes Payables Outsourcing Check Payments in a Comprehensive Payables Environment Payroll Disbursements Summary Notes Chapter 9: International Working Capital Capitalism Goes Global The Financing of International Transactions The Foreign Exchange Markets Country Risk Analysis Other Significant Issues in International Working Capital Cultural and Corporate Practices Affecting Working Capital Summary Notes Chapter 10: Information and Working Capital Information Technology Bank Information Technology Internet Bank Technology ERP: An Alternative Approach Choosing Working Capital Information Systems Summary Notes Chapter 11: Managing the Working Capital Cycle Risk and Working Capital Traditional Risk Management Enterprise Risk Management The ERM Process Efficiency and Working Capital Working Capital and Liquidity Suggested Actions Developments in Working Capital Management The Gizmo Deal: How Delays Turn Profits into Losses Summary Notes Chapter 12: Introduction to Working Capital Cases Sequence of the Cases The Concept of the Working Capital Case Case: Widget Manufacturing Suggested Solutions Cases on Working Capital Management Case 1: Dinner Bell Hotel Cash Flow Issues Alternative Actions The "Raw" Data Questions Case 2: Koala Fun The Partner′s First Success Financial Concerns Borrowing Issues Working Capital Final Thoughts Questions Case 3: Miller Building Supplies Joseph Miller Starts MBS Variations in Working Capital Requirements A Banker′s Assistance Questions Case 4: Office Smart The Business of Office Smart Financial Issues Questions Case 5: Quacker Cracker The Attitude toward Debt Financial Planning Questions Case 6: Young Brands Changes in YB′s Global Marketing Strategy Forecasting Considerations Working Capital Issues Financial Issues Questions Appendix I: Basic Financial Concepts General Balance Sheet Issues Assets and Liabilities Net Worth Cost of Capital Appendix II: Websites of Working Capital Organizations∗ Glossary About the Author Index

JAMES S. SAGNER, P H D, has been a Professor at the University of Bridgeport and has taught executive education in the finance program at the University of North Carolina. He is a Principal of Sagner/Marks, a treasury management consulting firm with offices in White Plains, New York, and of Bank Credit Training Partners. He is the author of Cashflow Reengineering, Financial and Process Metrics for the New Economy, and Essentials of Working Capital Management, and coauthor of Essentials of Managing Corporate Cash.