Course Description

 

 The main objective of liquidity and working capital management is to maximize a firm’s value while ensuring ready access to capital to pay creditors and run day-to-day operations. Reducing the cash conversion cycle, gauging liquidity requirements, and reducing surplus funds are essential to accomplishing this. This ensures the company can divert money to profitable ventures or give it back to shareholders while aligning with its business framework.

Different industries and businesses within the same industry have different working capital requirements. Manufacturing businesses with complex production processes may require holding inventory for extended periods, while distributors of less complex goods may have minimal inventory. Retail businesses with multiple sales locations and credit sales require more working capital in inventories and accounts receivable.

Service and software businesses generally have lower working capital requirements as they don’t have inventories and receive upfront payments.

 

    Objectives

• Understand the key concepts and components of working capital and liquidity.
• Analyze the cash conversion cycle and its impact on business operations.
• Apply techniques for optimizing receivables, payables, and inventory.
• Evaluate strategies to maintain adequate liquidity for ongoing operations.
• Interpret financial ratios and metrics to assess working capital efficiency.
• Identify potential liquidity risks and develop mitigation strategies.
• Align working capital management with overall financial and strategic goals.

 

Outline

 Day 1:

Introduction to Liquidity and Working Capital

• Definitions and importance
• The working capital cycle
• Liquidity vs. profitability
• Stakeholder perspectives (e.g., investors, banks)

 

Day 2:

Key Components of Working Capital

• Accounts Receivable
• Credit policies
• Collection strategies
• Inventory
• Inventory turnover
• JIT, EOQ, ABC analysis
• Accounts Payable
• Supplier terms
• Early payment discounts vs. cash retention

 Day 3:

Measuring and Monitoring Liquidity

• Liquidity ratios
• Current ratio
• Quick ratio
• Cash conversion cycle (CCC)
• Cash flow forecasting
• Stress testing and scenario analysis

 Cash and Liquidity Management Tools

• Cash pooling (physical vs. notional)
• Treasury management systems (TMS)
• Bank relationship management
• Payment terms optimization

   Day 4 :

Strategies for Working Capital Optimization

• Operating cycle reduction
• Lean operations
• Factoring and invoice discounting
• Dynamic discounting platforms

 Financing Working Capital

• Trade finance instruments
• Letters of credit
• Bank guarantees
• Supply chain finance
• Short-term borrowing options
• Revolving credit facilities

Day 5:

Liquidity Risk Management

• Identifying liquidity risks
• Internal controls and governance
• Regulatory considerations (e.g., Basel III liquidity ratios)
• Contingency planning and buffers