All corporations, especially young ones or those experiencing fast growth, must carefully monitor their short-term accounts.
All corporations, especially young ones or those experiencing fast growth, must carefully monitor their short-term accounts. All companies like growth, but growth comes at a cost: fast growing receivables, inventory piling up in warehouses, cash shortfalls as payment receipts can not keep up with production costs, etc. Then, these firms will need working capital financing in many cases; however, in order to obtain that, they must show that they have a good handle on future growth account by account.
The reason why each account is looked at separately is that receivables can usually be turned into cash fairly easily. Basically, a receivable is a promise to pay from a client, and that promise is based on that client’s credit position, which can be ascertained rather quickly.
Inventory, however, is much more difficult to monetize and thus is usually discounted for working capital loan purposes. So, a bank may provide only a fraction of the value of the inventory as they don’t want to be stuck with stale inventory if things go wrong.
Returning to receivables, credit policy at the corporate level is crucial. That is because receivables tend to be much larger than inventory – after all, the receivables already have the profit margin baked in! So, determining and implementing a savvy and effective credit policy is something that all corporations must have.
Please read through the Moab Aviation document to get better understanding on the assignment.
the Moab Aviation Template is the question template.
All answer will be in excel format.
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