Study Guide

FIN/571 Version 6

Week 3 Study Guide: Working Capital Management

Readings and Key Terms

Ch. 14 of Fundamentals of Corporate Finance

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Trade credit
Consumer credit
Cash conversion cycle
Operating cycle
Carrying costs
Economic order quantity
Compensating balances
Float
Lockbox
Working capital
Maturity matching strategy
Short- and long-term financing
Credit lines
Commercial paper

Ch. 15
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Bootstrapping
Venture capitalists
Angel investors
Seasonal issue
Prospectus
Underwriting
Cash offer
Shelf registration
Public placement
Private placement

Ch. 16

Optimal capital structure

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Firm value
Financial restructuring
Business and financial risk
Costs of debt
Asset substitution problem

Ch. 17
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Payout policy
Dividends
Declaration date
Ex-dividend date

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Study Guide
FIN/571 Version 6
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Record date
Payable date
Stock repurchase
Stock dividends
Tender offer
Stock split

Ch. 19
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Financial and strategic planning

Pro forma financial statements
Percent of sales method
External funding needed (EFN)
Payout and plowback ratios
Internal and sustainable growth rate

Content Overview

Working capital management

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Concepts of working capital

Cash conversion cycle

Understand carrying costs.

Cash management and budgeting

Identify various components of the cash conversion cycle.

Know how to calculate the cash conversion cycle.

Working capital management strategies

Understand working capital terms.

Know what trade and consumer credit is.

Understand the terms of sale.

Calculate and interpret the cost of trade credit.
Calculate and interpret economic order quantity.
Identify reasons for holding cash.
Understand the concept of float.
Identify methods of float (lockboxes, EFTs, and so on).

Financing working capital

Understand differences in short- and long-term financing strategies.

Identify various forms of short-. and long-term financing.

Copyright 2013, 2011, 2010, 2008 by University of Phoenix. All rights reserved.

Study Guide
FIN/571 Version 6

Raising capital

Capital structure policy

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Capital structure and firm value

Identify the benefits of financing a company with debt.

Identify the costs of financing a company with debt.
Understand how taxes influence capital structure.
Determine optimal capital structure of a company.

Dividends, stock repurchases, and payout policy

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Types of dividends

Identify various types of dividends.

Understand the dividend payment process.

Stock repurchases and dividends

Determine a companys optimal capital structure.

Identify the relation between business, financial, and total equity risk.

Benefits and costs of using debt

Identify and differentiate between the various methods of raising capital.

Differentiate between the advantages and disadvantages of going public.
Understand the process of a company going public.
Differentiate between private and public markets.

Identify how stock repurchases differ from dividends.

Understand concept of dividends and firm value.
Understand differences between stock dividends and stock splits.

Financial planning and forecasting

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Finance and strategic planning

Differentiate among strategic, investment, financing, and divisional plans.

Identify various financial planning models.
Understand why sustainable growth is important.
Create a pro forma balance sheet.
Create a pro forma income statement.

Copyright 2013, 2011, 2010, 2008 by University of Phoenix. All rights reserved.