Enable students to understand the dynamcs of financial management, its basic elements and management tools.
Intrinsic liquidity: liquid company assets and liabilities, and those that are liquidable within twelve months, are considered part of the working capital.
Functional liquidity: includes only those resources that are considered necessary for smooth running of operations (purchasing, processing, sale).
Areas that contribute to the value of the Working Capital:
Retail companies make many “speculative” purchases which causes a surplus of goods in stock. The justification for this is the chance of much higher than average returns on these goods, through inflationary or exceptional price increases.
Three main classes of goods are identified. First class goods are ones that need constant and careful checking (20% of the total); for second and third class goods, less sophisticated management techniques can be used.
Seasonal, “speculative” or recently referenced articles can be found in any of these classes and this makes it difficult to apply specific management techniques, especially if the analysis involves looking at sales over the year.
Merchandise credit management
For effective credit management, the following steps need to be taken:
The credit worthiness investigation generally concludes as follows:
Supplier debt management
Correct and effective management of payment debt contracted with suppliers has a positive knock-on effect on financial management, as it reduces the need for cash to finance running costs, and on business management, because the company is then in a position to negotiate better purchasing deals or delivery times or to request promotional support.
Retail companies often have liquid resources in excess and these can be used to: change their debt position, make easily-liquidable investiments, invest in “speculative” goods.
Causes for low use of financial leverage
Borrowing is not very popular with retail companies, though it is increasing as competition tightens. Financial leverage is becoming more common because it enables retailers to get cash discounts from suppliers. It gives rise to financial buyer-seller relationships downstream from the business transaction, improving revenue if they manage to negotiate better price deals than they get from suppliers.
The people, or function, responsible for formulating the plan for sources of income and spending and the effects of National budget. Financial managers are called on :
1. Retail services and distribution formulae
3. Development of different types of retail and wholesale businesses
6. Management control in the retail industry
7. The management of marketing operations
8. Purchasing and logistics management
9. Category management in large retail companies
11. Technological innovation in retail management
12. Retail distribution policy
13. Management of Vertical relationships in Distribution Channels