Definition The cash conversion cycle measures the period of time in days from the moment inventories are paid until the moment accounts receivable is collected. In other words, it is the duration of working capital… Read more
Definition Trade credit is the most common source of spontaneous short-term finance for a business. In such an agreement, the seller is the lender, allowing the buyer to pay at a later date than it… Read more
Definition Factoring of accounts receivables is a way of raising funds to meet emerging working capital needs. A business sells its accounts receivable to a financing company on a recourse or nonrecourse basis at some… Read more
Definition The concept of effective interest rate is widely used in finance to assess the interest expense of debt financing or interest income for financial assets. Moreover, IFRS (International Financial Reporting Standards) require that the… Read more
Definition The Miller-Orr model of cash management is developed for businesses with uncertain cash inflows and outflows. This approach allows lower and upper limits of cash balance to be set and determine the return point… Read more
Definition The Baumol-Tobin model is used in corporate finance as a cash management technique to help determine the cash balance that grants the minimum amount of transaction cost and opportunity cost (foregone interest on marketable… Read more
Definition A cash budget is a financial statement with itemized projected cash inflows and cash outflows, and a projected cash balance at the end of a budget period. It is necessary to know in advance… Read more
Definition Cash and marketable securities management is the primary objective of the treasury and financial department. This includes financing working capital needs, managing debts, paying vendor bills, collecting accounts receivables, controlling currency positions and interest… Read more
Definition ABC analysis is a technique of categorization based on the Pareto principle. This technique is used in inventory management to categorize inventory in terms of annual consumption value to assign the most valuable items.… Read more
Definition A company holds safety stock to mitigate the risk of running out of stock due to an unexpected increase in demand rate and/or lead time. In other words, it is an extra quantity of… Read more