16.1 a. What is the goal of cash management? b. Briefly describe float and the f

Question

16.1

a. What is the goal of cash management?

b. Briefly describe float and the following associated cash management techniques:

• Receipt acceleration

• Disbursement control

16.2

a. What is a cash budget, and how is it used?

b. Should depreciation expense appear on a cash budget? Explain your answer.

16.3

a. Give two reasons why businesses hold marketable securities.

b. Which types of securities are most suitable for holding as marketable securities?

c. Suppose Southwest Regional Medical Center has just raised $6 million in new capital that it plans to use to build three freestanding clinics, one each year over the next three years. (For the sake of simplicity, assume that equal payments have to be made at the end of each of the next three years.) What securities should be bought for the firm’s marketable securities portfolio, assuming that the firm has no other excess cash? (Hint: Consider both the type and maturity of the securities.)

d. Now, consider the situation faced by the Huntsville Physical Therapy Group. It has accumulated $20,000 in cash above its target cash balance, and it has no immediate needs for this excess cash. However, the firm may at any time need some part or all of the $20,000 to meet unforeseen cash needs. What securities should be bought for the firm’s marketable securities portfolio?

16.4

a. What is meant by the term revenue cycle?

b. What are the three sets of activities that comprise the revenue cycle?

c. What is the overall goal of revenue cycle management?

16.5

a. Define the term average collection period (ACP).

b. How is ACP used to monitor overall revenue cycle performance?

c. What is an aging schedule?

d. How is an aging schedule used to monitor overall revenue cycle performance?

16.6

a. What is a metric?

b. What role do metrics play in revenue cycle management?

16.7

a. What is a just-in-time (JIT) inventory system?

b. What are the advantages and disadvantages of JIT systems?

c. Can JIT inventory systems be used by healthcare providers? Explain your answer.

16.8

Describe the three major sources of short-term financing.

16.9

a. What is the difference between free trade credit and costly trade   credit?

b. Should businesses use all the free trade credit that they can get? Explain your answer.

c. Should businesses use all the costly trade credit they can get? Explain your answer.

16.10

Explain briefly how healthcare providers typically obtain secured short-term financing, if such financing is needed.

please answer all the questions above !!!!!!!!!!!

Explanation / Answer

What is the goal of cash management?

Cash management helps to make proper arrangement of cash for the day to day requirements of the business organisation, so that it can influence the efficiency of the operations which can reduce overall cost of the organisation. Maintaining optimal level of cash helps to maintain the goal of Internal controls, clear financial communication through preparation of cash flow statements and preparation of financial forecast. It also helps to achieve the goal of developing good relation with bankers, so that they can raise finance

b. Briefly describe float and the following associated cash management techniques:

• Receipt acceleration: Receipt acceleration is a technique of cash management, when the recovery is expedited and is aggressively followed up, so that the cash collection could be effectively collected. It helps to build a good cash level with the management, because of speedy recovery of debts.

• Disbursement control: Disbursement control is a technique, by which the finance manager tries to delay the payment to the maximum date possible, so that more cash could be held at hands of the finance manager for a longer time. Thus ensuring healthy cash avaialibility.

What is a cash budget, and how is it used?

Cash budget is a process of preparing cash estimate requirement by the organisation for a period of time. It is basically forecast of cash requirements of the company at various operational level, so that cash could be arranged for the requirement forecasted. It is a very important tool, because it ensures that the cash is always available with the company, if not then atleast it can be arranged at the time of requirements.

b. Should depreciation expense appear on a cash budget? Explain your answer.

No, It should not appear on a cash budget, Because it is a noncash charge and it doesnt mean any outflow of cash from the organisation. It is a noncash charge and it is just mentioned in the financial statements, for accounting purpose.Cash budget only includes real cash flows.

16.3

a. Give two reasons why businesses hold marketable securities.

Firms hold marketable securities to maintain liquidity. Marketable securities generate a greater return than just holding cash, also marketable securties are very liquid, which can be easily converted into cash.

Another reason for holding marketable securities, may be because of the minimum requirement regulations of the organisation to maintain liquidity.

b. Which types of securities are most suitable for holding as marketable securities?

Long term securities are most suitable for holding as marketable securities.

c. Suppose Southwest Regional Medical Center has just raised $6 million in new capital that it plans to use to build three freestanding clinics, one each year over the next three years. (For the sake of simplicity, assume that equal payments have to be made at the end of each of the next three years.) What securities should be bought for the firm’s marketable securities portfolio, assuming that the firm has no other excess cash? (Hint: Consider both the type and maturity of the securities.)

The company should consider to buy short term to medium term securities, matching the maturity of the securities with the cash flow requirements. So that the cash would be available at the time of outflow of cash in each year.

d. Now, consider the situation faced by the Huntsville Physical Therapy Group. It has accumulated $20,000 in cash above its target cash balance, and it has no immediate needs for this excess cash. However, the firm may at any time need some part or all of the $20,000 to meet unforeseen cash needs. What securities should be bought for the firm’s marketable securities portfolio?

The firm should invest in liquid instruments, which may have a very high liquidity in the market, and which can be traded every day in the secondary markets. Huntsville Physical Therapy Group should invest these $20000 into the most liquid securities, which can be sold at anytime either in part or in full to meet the unforseen cash needs of Huntsville Physical Therapy Group.

16.4

a. What is meant by the term revenue cycle?

Revenue cycle is generating revenue on a recurring basis by providing goods and services to the customers and then ultimately receiving revenue from the sales.

b. What are the three sets of activities that comprise the revenue cycle?

The three sets of activities that comprise of revenue cycle are:

1. Sales order: generating sales order so that goods could be sold to customers.

2. Shipping goods to the customer.

3. Collecting Cash from the customer to which credit sales is made.

c. What is the overall goal of revenue cycle management?

The goal of revenue cycle management is to provide right product to the right customer at the right time, so that enough of cash is maintained at operation level, keeping in mind the debits and credits.

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