Assignment: Financial Management - 1

Financial Management - 1
Assignment
UNIT-1 & 2
Name : Ankit Singh

Class : BBA(P)2
Question : 1
What is the meaning of accounts receivables ?
Give its importance.
Accounts receivable (AR) is the balance of money due to a firm for
goods or services delivered or used but not yet paid for by
customers. Accounts receivables are listed on the balance sheet
as a current asset. AR is any amount of money owed by customers
for purchases made on credit.
Accounts receivable is an important aspect of a businesses'
fundamental analysis. Accounts receivable is a current asset so it
measures a company's liquidity or ability to cover short-term
obligations without additional cash flows.
Fundamental analysts often evaluate accounts receivable in the
context of turnover, also known as accounts receivable turnover
ratio, which measures the number of times a company has
collected on its accounts receivable balance during an accounting
period. Further analysis would include days sales outstanding
analysis, which measures the average collection period for a firm's
receivables balance over a specified period.
Account receivable in one hand is a good thing, as it shows that
business was able to sell its service and products. It simply
indicates that business was able to obtain orders and was
successful in delivering them. It also gives a sense of relief that,
definite fund is going to come in the future.
Question : 2
What are the Objectives of Trade Credit ?
A trade credit is a business-to-business (B2B) agreement in which
a customer can purchase goods on account without paying cash
up front, paying the supplier at a later scheduled date. Usually
businesses that operate with trade credits will give buyers 30,
60, or 90 days to pay, with the transaction recorded through an
invoice. Trade credit can be thought of as a type of 0% financing,
increasing a company’s assets while deferring payment for a
specified value of goods or services to some time in the future
and requiring no interest to be paid in relation to the repayment
period.
Objectives of trade credit are:

(a) Effectively outlines policies and procedures that will help
provide your customers with options when they cannot pay in full.
(b) Implements a plan that will enable your business to
adequately provide reasonable credit limits for your customers
that have revolving credit accounts.
(c) Outlines the steps to take to collect from past-due or late
paying customers and how to eliminate bad debt.
(d) Provide guidelines to legally collect money that k due to your
company from slow or non-paying customers and from bad
checks.
(e) This is short-term finance that is relatively quick to arrange.
The typical amount involved and the terms will depend entirely on
your trading activity. The reverse is also common, where a
business’s customers or clients will request trade credit terms.
Question : 3
What are the functions of receivable management ?
Receivable Management or Managing Accounts Receivables
means collecting the payments due for Sales in a timely manner.
When we sell any services, products or solutions to our clients or
customers, they owe us the money. Collecting that money is
called Receivables Management.
Every company wants to buy low and sell high. But they can lose
everything with poor receivables management during the last
phase of the sales process (payment). Over half of all bankruptcies
can be attributed to poor receivables management, which
demonstrates its importance. Receivables management involves
much more than reminding customers to pay. It is also about
identifying the reason for non-payment. Perhaps a product or
service was not delivered? Or there was an administrative error in
the invoice? Good receivables management is a comprehensive
process consisting of:
 Determining the customer’s credit rating in advance

 Frequently scanning and monitoring customers for credit risks
 Maintaining customer relations
 Detecting late payments in due time
 Detecting complaints in due time
 Reducing the total balance outstanding (DSO)
 Preventing any bad debt in receivables outstanding
Question : 4
What is the impact of receivable management on
working capital?
Receivable management on working capital management is very
important due to its affect on risk and profitability of company
and thus the value of the company. The study concentrates on the
main components of working capital like inventory management,
accounts receivable management and cash management of TNPL.
The tools used in this study includes ratio analysis, trend analysis
and percentage method. Even in a given industry, paper mills may
have very different working capital needs, and it is therefore
impossible to determine an overall optimal working capital level
without considering a paper mills’s specific situation. As working
capital spans over a wide range of different business activities, the
parameters in the equation must be set in relation to the overall
strategy and business model to determine the optimal level of
working capital.
Receivables is one of the three primary components of working
capital, the other two being inventory and cash. Receivables
occupy second important place after inventories and thereby
constitute a substantial portion of current assets in several firms.
The capital invested in receivables is almost of the same as that of
the investment made in cash and inventories.
According to Robert N. Anthony, (Robert & Anthony) "Accounts
receivables are amounts owed to the business enterprise, usually
by its customers. Sometimes it is broken down into trade
accounts receivables; the former refers to amounts owed by
customers, and the latter refers to amounts owed by employees
and others".
When goods and services are sold under an agreement permitting
the customer to pay for them at
a later date,the amount due from the customer is recorded
as accounts receivables; so,
receivables are assets accounts representing amounts owed
to the firm as a result of the credit
sale of goods and services in the ordinary course of business.
Question : 5
What do you mean by inventory management?
Inventory management refers to the process of ordering, storing,
and using a company's inventory. These include the management
of raw materials, components, and finished products, as well as
warehousing and processing such items.
For companies with complex supply chains and manufacturing
processes, balancing the risks of inventory gluts and shortages is
especially difficult. To achieve these balances, firms have
developed two major methods for inventory management: just-
in-time and materials requirement planning: just-in-time (JIT) and
materials requirement planning (MRP). Inventory management is
the supervision of non-capitalized assets, or inventory, and stock
items. As a component of supply chain management, inventory
management supervises the flow of goods from manufacturers to
warehouses and from these facilities to point of sale. A key
function of inventory management is to keep a detailed record of
each new or returned product as it enters or leaves a warehouse
or point of sale.
Organizations from small to large businesses can make use of

inventory management to manage their flow of goods. There
are numerous inventory management techniques, and using the
correct one can lead to providing the correct goods, at the correct
amount, place and time.
Inventory control is a separate area of inventory management
that is concerned with minimizing the total cost of inventory while
maximizing the ability to provide customers with products in a
timely manner. In some countries, the two terms are used as
synonyms.
 Inventory management refers to the process of ordering,

storing, and using a company's inventory. These include the
management of raw materials, components, and finished
products as well as warehousing and processing such items.
 For companies with complex supply chains and
manufacturing processes, balancing the risks of inventory
gluts and shortages is especially difficult.
 To achieve these balances, firms have developed two major
methods for inventory management: just-in-time and
materials requirement planning: just-in-time (JIT) and
materials requirement planning (MRP)
Depending on the type of business or product being analyzed, a
company will use various inventory management methods. Some
of these management methods include just-in-time (JIT)
manufacturing, materials requirement planning (MRP), economic
order quantity (EOQ), and days sales of inventory (DSI).

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Financial Management - 1

Name : Ankit Singh

Objectives of trade credit are:

 Determining the customer’s credit rating in advance

Organizations from small to large businesses can make use of

 Inventory management refers to the process of ordering,

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