1. Financial Liquidity Management

2. Financial Liquidity Management
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5 meetings + 1 exam (test)
Next meeting: 12th March.
G. Michalski, Effectiveness of investments in operating Cash, Journal of Corporate Treasury Management, ISSN: , vol. 3, iss. 1, December 2009, p
G. Michalski, Inventory Management Optimization as Part of Operational Risk Management, Journal of Economic Computation and Economic Cybernetics Studies and Research , ISSN: X, vol. 43 nr 4/2009, p
G. Michalski, Operational risk in current assets investment decisions: Portfolio management approach in accounts receivable, Agricultural Economics , 54/2008(1), ISSN: X, 2008, s

3. Short-term Financial decisions – NWC policies
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.

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

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

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

11. PROFIT
RISK

12. Example NWC-1a.