Discussion_7th and Peer to peer responses

RESPONSE FOR THE DISCUSSION:

In your response to your classmates, consider comparing cash generation techniques at your company versus his or her company. Draw distinctions based on the industry and tell your colleagues why those distinctions are necessary for the management of cash flow. Below are additional suggestions on how to respond to your classmates’ discussions:

· Ask a probing question, substantiated with additional background information, evidence or research.

· Share an insight from having read your colleagues’ postings, synthesizing the information to provide new perspectives.

· Offer and support an alternative perspective using readings from the classroom or from your own research.

· Validate an idea with your own experience and additional research.

· Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

· Expand on your colleagues’ postings by providing additional insights or contrasting perspectives based on readings and evidence.

Author:  Nikhil Kumar Podduturi

From applied practicum, it is noticeable that businesses depend on adequate capital for their establishment and to operate their activities. Primarily, the total capital of an organization can be in a class entailing working capital and fixed capital. In most organizations, it is a necessity to have provisions for fixed capital to help in the purchasing of fixed assets such as land, furniture, building, machinery, and many others. As opposed to working capital that is required for current assets investment, it is well known that fixed capital is usually invested for a long duration. There are many scenarios in the organization where I am employed that helped me understand how the various components of working capital, such as the cash budget and inventory management, are crucial in decision making. Managing working capital efficiently ensures the overall financial health and profitability for businesses. As such, effective incorporation of working capital guarantees that an organization is capable of maintaining adequate cash flow for meeting the short-term debt obligations and operating costs. By discussing how inventory management and cash budget components are vital, one gets to know the importance of working capital (Sharma, 2020).

Familiarization with inventory management played an essential role in creating insights on how a business behaves in terms of performance. In decision making, knowing about inventory management was essential since stakeholders need to know all the primary assets that can easily be converted into sales revenues. In any enterprising activity, it is always vital to ensure a business from downscaling. As such, inventory management is indeed one of those components of working capital that exhibits excellent benefits. There was one moment in the organization where I was actively involved in measuring the success of a business function through using metrics like the number of products sold and the replenishment of inventory. Luckily, we arrived at a high inventory of 20%, which meant that the company was not in danger or threat of losing out on sales. Notably, this was a reduction of 10%. This was quite informative to decision making since it shows that the performance of the company was okay and that there was no adverse effect or risk on overall production and sales. In essence, this is the point where I noted that inventory management is a vital component of working capital and an essential factor to overall business operations in overtly all sectors of the economy for aiding decision making (Supramono, 2019).

A cash budget is a vital component of working capital that keeps checking on whether the business is progressing, slugging, or falling. There was a scenario a couple of months ago where I was involved in the process of determining the cash inflows and cash outflows. The aim was advisability in nature, and this activity was done fortnightly as per the company’s culture. This is where I confirmed that a cash budget resembles a plan that estimates the future use of cash for a given task or project.  For example, in the latest exercise, we prepared a cash budget which also included all the sources of cash and the possible use of funds. In our cash budget, we arrived at net cash of $57,000. Based on the businesses carried out by our company, this value did not manifest any risk to operations. In essence, this is an important component of the cash forecast.

In a nutshell, working components and fixed capital should be well defined. The reason is that the management of organizations needs to get information surrounding the wellbeing of an organization. It also helps monitor the productivity of primary and secondary operations. Cash budget and inventory management as the components of working capital play an integral part in decision making (Kieschnick, 2018).

 

References:

Chen, C., & Kieschnick, R. (2018). Bank credit and corporate working capital management. Journal of Corporate Finance, 48, 579-596.

Nastiti, P. K. Y., Atahau, A. D. R., & Supramono, S. (2019). Working capital management and its influence on profitability and sustainable growth. Business: Theory and Practice, 20, 61-68.

Seth, H., Chadha, S., Ruparel, N., Arora, P. K., & Sharma, S. K. (2020). Assessing working capital management efficiency of Indian manufacturing exporters. Managerial Finance.