Working capital management

[@TheFinanceStoryteller]

Enjoyed this video? Then please subscribe to the channel, and let's dive deeper into working capital (with examples of well-known companies!): kzbin.info/www/bejne/jqercp-rnpJ1pNE

[@LordRulerr]

Hello! I wanted to know your opinions on whether working capital management and cash management can be automated? \

[@TheFinanceStoryteller]

@@LordRulerr Hello Faisal! Some processes and reporting can be (partially) automated, but the bigger picture thinking as well as the influencing/negotiating is best left to humans.

[@user-ql3ws5uz1d]

This is awesome, better than 99% of what is taught in school and other financial modeling courses. You can only understand these concepts from a business perspective first and only then from a financial perspective.

[@TheFinanceStoryteller]

Exactly! Thank you for describing that so beautifully. I think you will enjoy my latest video on inventory management as well.... business dynamics/interaction first, then finance! kzbin.info/www/bejne/eovLeYaIacRseJY

[@dimonefreehold]

My working capital class starts Monday! Talk about timely arrival. And you’re an excellent teacher keep it up!

[@TheFinanceStoryteller]

Thank you! :-) Let me know how the class goes, and what additional insights you pick up there!

[@marktaylor2087]

I've just sat and read through a 40 page chapter in a Corporate Finance textbook and got a much better grasp of the concept from this 9 minute video - nice work! Definite new subscriber, thanks a lot for the content!

[@TheFinanceStoryteller]

Welcome to the channel, Mark! Great to hear you enjoyed my story on working capital management. Can I quote you on that? 😉 I have made some related videos on specific aspects of working capital: inventory management, DSO, etcetera which are in this playlist: kzbin.info/www/bejne/mqaxYXV3jp6EbtU 😎 Please share the word to your fellow students!!!

[@marktaylor2087]

@@TheFinanceStoryteller Absolutely, go ahead

[@kylechambers6840]

You explain these concepts better than my business school did. Thank you and keep churning these videos out.

[@TheFinanceStoryteller]

Thank you, Kyle! Better quality at lower cost. ;-)

[@thelegolegend1]

Hey, finance student here. I just wanted to thank you for these videos. Some topics like factoring are normally explained in a difficult way but you explain it simplified which I really appreciate. So keep up the good work and I hope I will get a good grade for my supply chain finance exam :).

[@TheFinanceStoryteller]

Glad it was helpful! Thanks for the kind words. Please subscribe to the channel, and share with fellow students! 🙂 I think you might enjoy the related video on inventory management as well: kzbin.info/www/bejne/eovLeYaIacRseJY

[@TheFinanceStoryteller]

Speaking of studying.... Did you come across any topics in your studies that I haven't covered on my channel?

[@navchand2019]

Excellent examples, very well broken down so non finance experts can understand. Thanking you very much for your videos.

[@TheFinanceStoryteller]

So happy to hear that! :-) Thank you for watching and commenting. Please subscribe, and spread the word!

[@vkvraju]

One of the best explanation videos on Working Capital management. Will watch it again & again and recommend it to others.

[@TheFinanceStoryteller]

Much appreciated! Please subscribe, and spread the word. Take a look at my other videos on specific aspects of working capital as well (DSO, inventory management, etc.): kzbin.info/www/bejne/mqaxYXV3jp6EbtU

[@XR1624]

best video in explaining the concept of maximizing cash flow & profit!

[@TheFinanceStoryteller]

Wow, thank you for that impressive compliment. 😃

[@walacerosalaurindo]

Excellent teacher! Thank you Philip!

[@TheFinanceStoryteller]

My pleasure, Walace! I also made videos specifically on DSO and inventory management, see the working capital management playlist: kzbin.info/www/bejne/eovLeYaIacRseJY&pp=gAQBiAQB

[@2MuchSwag2Lose]

Thank you for providing such great and simply examples! Really helped me understand why it's important and what managers can do to alter the cash cycle for their firm's benefit.

[@TheFinanceStoryteller]

Thank you so much for the kind words. In times of rising interest rates, working capital management gets more and more important! I have specific videos on the drivers of DSO (accounts receivable) kzbin.info/www/bejne/mqaxYXV3jp6EbtU and on inventory management kzbin.info/www/bejne/eovLeYaIacRseJY that could be helpful for you too. Please spread the word about the channel to friends and colleagues!

[@konstancyja82]

Welcome back and Happy New Year! Brilliant explanation, excellent summary!! I learn so much in few minutes. Its so much better than any explanation you can find in book or school or receive at the office !

[@TheFinanceStoryteller]

Happy New Year to you too! Nice to hear from you. And thanks for the compliments. :-)

[@sunnysideup8980]

this was incredibly well and simply taught! thank you!

[@TheFinanceStoryteller]

Great to hear that! Thank you. :-)

[@antentoila853]

Really awesome sir

[@TheFinanceStoryteller]

Thank you! Happy to help. 😊

[@njt.aspiringcpa1999]

Thank you so much! Well-explained and it helped me understand the topic at first view.

[@TheFinanceStoryteller]

Happy to help, Nino! :-) I have a few related videos, on DSO and inventory management, that might be useful for you as well: kzbin.info/www/bejne/eovLeYaIacRseJY&pp=gAQBiAQB Let me know what you think of them!

[@njt.aspiringcpa1999]

That's so kind of you. I find it very useful.. Thank you so much!

[@TheFinanceStoryteller]

Please spread the word about the channel to friends and colleagues!

[@yolandamkize9076]

This was really understandable and so clear, thank youu!

[@TheFinanceStoryteller]

Happy to help, Yolanda! There might be some useful videos on specific aspects of working capital management in this playlist: kzbin.info/www/bejne/mqaxYXV3jp6EbtU

[@cats4cody58]

I was told by my teacher that Just-in-time management increases working capital. Just-In-Time Inventory Management would improve Working Capital and therefore increase liquidityJust-In-Time Inventory management will reduce storage costs, speed up inventory turnover, meaning stock is turned into cash faster (rather than being held for a long time), minimise the use of an overdraft to make large stock purchases and reduce wastage. Remember working capital is measured as current assets - current liabilities

[@TheFinanceStoryteller]

Working capital tends to get defined in textbooks as the current assets on a company’s balance sheet minus its current liabilities. There is a much more practical definition, used in everyday business life, that focuses on those items that are (in real life) often the largest in amount: accounts receivable, plus inventory, minus accounts payable. In that latter definition, JIT decreases working capital.

[@jofontaine217]

Just discovered your channel. What a great video. 👍

[@TheFinanceStoryteller]

Welcome aboard! Here are some related videos on inventory management and DSO for you to enjoy: kzbin.info/www/bejne/mqaxYXV3jp6EbtU

[@KAPALONDON]

Thank you for that. Very informative

[@TheFinanceStoryteller]

Thanks for watching! More ideas in other videos on specific areas like inventory management kzbin.info/www/bejne/eovLeYaIacRseJY and receivables management kzbin.info/www/bejne/mqaxYXV3jp6EbtU

[@patosanchez5968]

thanks for the class !!!

[@TheFinanceStoryteller]

My pleasure, Pato! I made a follow-up video specifically about inventory management kzbin.info/www/bejne/eovLeYaIacRseJY which I think might be of interest to you as well.

[@harikrishnagupta284]

Thank you Sir, Excellent presentation.

[@TheFinanceStoryteller]

Glad it was helpful!

[@riezljermaine6166]

This helped me a lot. Thank you so much!

[@TheFinanceStoryteller]

Great to hear that, Riezl! There are a few related videos on specific aspects of working capital (like receivables and inventory) in this playlist: kzbin.info/www/bejne/mqaxYXV3jp6EbtU

[@pedroinglesjunior3840]

Hey! Will could you make a video on EOQ (Economic Order Quantity)?

[@TheFinanceStoryteller]

Thank you for the suggestion, Pedro, but I think that topic is already sufficiently covered by others. I do have a video sharing my thoughts on inventory management that might be helpful for you: kzbin.info/www/bejne/eovLeYaIacRseJY

[@pedroinglesjunior3840]

@@TheFinanceStoryteller Thanks! I appreciate the response, and yes the video was quite useful.

[@Jamievel7]

Very clear explanation, thank you.

[@TheFinanceStoryteller]

Thank, Jamie! Glad you liked it! The related videos on working capital itself kzbin.info/www/bejne/jqercp-rnpJ1pNE and on the current ratio kzbin.info/www/bejne/mpzMhIqFZ7SMntE might also be helpful for you!

[@josepdevillaretponsmataro8199]

You are literally a GOD

[@TheFinanceStoryteller]

Please spread the word! 😎

[@josepdevillaretponsmataro8199]

@@TheFinanceStoryteller A whole University is using your videos as reference! Keep the work up! Much love.

[@TheFinanceStoryteller]

Wow. That is amazing. It sends shivers down my back. Which university is that? Greetings to all from the Netherlands. P.S. Working on a new video right now, should be published later today.

[@mksrahman90]

Thank you. It was helpful

[@TheFinanceStoryteller]

You're welcome! Nice to hear that. Thank you for watching and commenting. I have related videos on my channel on working capital metrics like DSO kzbin.info/www/bejne/mqaxYXV3jp6EbtU and inventory turns kzbin.info/www/bejne/q5mth2icl7uBj6c that might be helpful for you as well.

[@SportSphere360_]

Hi. Thanks for nice video. in one video you mentioned free cash flow, cash flow from operating expenses - investing in fixed assets .. Oracle don't have investing in fixed assets. They have only Purchases of marketable securities and other investments and Proceeds from maturities of marketable securities and other investments and Capital expenditures so in this case we will deduct only Capital expenditures from operating cash flow so their net free cash flow will be 5953 - 436 = 5517 .. impressive

[@TheFinanceStoryteller]

Yes, correct.

[@myofficetop]

Nice video, thanks!

[@TheFinanceStoryteller]

Thank you, Paul!

[@roadheaven6475]

Helpful! 👍👍👍

[@quasipseudo1]

Another excellent vid.

[@TheFinanceStoryteller]

Thank you!

[@nealshah9575]

Great!!Could you explain Permanent working capital

[@TheFinanceStoryteller]

Hello Neal! I had not heard of the term "permanent working capital" before you mentioned it, and have not seen it used in real world financial reporting in companies.

[@SN-ui2xj]

Thank you

[@TheFinanceStoryteller]

You're welcome!

[@joseLuis-vd6gh]

this video is great

[@TheFinanceStoryteller]

Thank you very much! Please subscribe to the channel, and spread the word. :-) I have a few related videos for you that might be of interest, for example this one about inventory management kzbin.info/www/bejne/eovLeYaIacRseJY

[@johnc8627]

Great video

[@TheFinanceStoryteller]

Thank you, Ben! Nice to hear that.

[@cvetyilieva4839]

Thank you! That was really useful :)

[@TheFinanceStoryteller]

Glad to hear that, Cvety! :-)

[@KrishanSingh-gz9op]

Can I calculate days payables outstanding (DPO) using the following formula:- DPO = Total raw material (inventory) purchases during the year / average accounts payable

[@TheFinanceStoryteller]

It all depends on whether raw materials are a major component of both the cost structure as well as the accounts payable balance. For a highly automated manufacturing company, yes. For a service company, probably not. The more common way to calculate DPO is Days Payable Outstanding = (Average Accounts Payable / Cost of Goods Sold) x Number of Days in Accounting Period

[@KrishanSingh-gz9op]

@@TheFinanceStoryteller Oops, I think in hurry I wrote accounts payable turnover formula instead of Accounts payable days. I meant to say this :- DPO = (Average accounts payable / Total raw material inventory purchases during the year) × 365.

[@Existentialkev]

I have clients that pay me on net 30 terms... but my employees need to be paid every two weeks. This has been causing some stress on my cash flow. Would invoice factoring be the obvious fix for this? Or is there other options that might work better?

[@TheFinanceStoryteller]

Hello Kevin! Without knowing what business you're in, here are some general suggestions. I would first work with your suppliers to extend payment terms, and to review your inventory to see if you can reduce your inventory levels (without causing any out-of-stock situations and missing a sale). Once those two are optimized, consider taking a short term loan to cover your working capital needs. If you decide to pursue invoice factoring, check very carefully what interest rate or "invoice discount" is being charged. In my experience, invoice factoring can be an expensive form of financing!

[@KrishanSingh-gz9op]

Is "working capital days" & "cash conversion cycle" the same thing?

[@TheFinanceStoryteller]

That sounds very similar, but it once again depends on how you define working capital: could be current assets minus current liabilities, or just A/R + inventory - A/P.

[@zainalii]

Hey, could you please give brief explanation about the account of "provision for sale returns"?

[@TheFinanceStoryteller]

Not really.... This is a topic in the revenue recognition domain: kzbin.info/www/bejne/bmKZgmmmhMZ6rJY Based on historical patterns, you record an estimate of expected sales returns. On the income statement, this is a debit to revenue. On the balance sheet, a credit to liabilities.

[@zainalii]

@@TheFinanceStoryteller thankyou

[@KumRchitect]

Great. What does “open invoices” mean?

[@TheFinanceStoryteller]

Invoices not paid yet, their status is "open" rather than "closed".

[@banderalrshoud2315]

How calculate the utilization of working capital, please? Thanks

[@TheFinanceStoryteller]

Hello Bander! I have not heard of the term "utilization of working capital" before. Working capital itself is in most cases defined as accounts receivable + inventory - accounts payable. Working capital turnover is revenue divided by average working capital. That's all I can add to this....

[@kye7796]

what are the most commonly followed working capital policies?

[@TheFinanceStoryteller]

Hi there! Not quite sure what you mean with this question. Are you referring to accounts receivables management (credit terms, credit limit), and accounts payable management (purchase prices, payment terms)?

[@deepikadeepikash9170]

Is capital issue management and working capital management same ?

[@TheFinanceStoryteller]

Hello Deepika! Thanks for your question. No, these are not the same. Issue management can be defined as managing the issues of corporate securities like equity shares, preference shares and debentures or bonds. This is covered in my video "What is an Initial Public Offering": kzbin.info/www/bejne/aqWZY3V7fZ50oNU

[@deepikadeepikash9170]

Thanks fr ur rply❤ can i get the meaning of functionaries of capital market

[@TheFinanceStoryteller]

@@deepikadeepikash9170 Probably best if you do a Google search on "what are the functions of the capital market". ;-)

[@hdp270]

Hi, May I know “how CAPM and Working Capital Management being used in the company?” Thank you

[@TheFinanceStoryteller]

Hello! That sounds like I am asked to answer a homework question for you, which I don't do.... I can however give you links to my working capital explained video kzbin.info/www/bejne/jqercp-rnpJ1pNE and my video discussing WACC (including a section on CAPM) kzbin.info/www/bejne/Z4CQdZWqi9qYg9k so you can find your own answer.

[@bharathidilipan.t9486]

Why do we deduct current liabilities

[@TheFinanceStoryteller]

Think of the elements in current assets and current liabilities. For a lot of companies, in current assets the accounts receivable are a big item: this is basically a "free loan" from a company to its customers, allowing them to pay later. The opposite happens in current liabilities, there accounts payable are a big item, which is basically a "free loan" from a supplier to the company. Hence it makes sense to deduct one from the other.