Working Capital Strategies for Microsoft Essay Example

amount of cash to minimize holding costs while covering daily expenses. Inventory management involves comprehending the appropriate level of inventory to sustain continuous production while reducing expenditures on raw materials.

By having knowledge of their monthly product sales, Microsoft can estimate the required raw materials for continued production. This means the company can effectively manage their work in progress and avoid over production since simply having a surplus of finished goods is insufficient. Proper debtors' management entails finding the right credit policy, which in turn affects cash flows. To offset the increase in revenue, Microsoft can utilize the cash conversion cycle. Additionally, if Microsoft foresees a 20 percent increase in revenues, this growth may be attributed to an increase in customers resulting from discounts.

Short-term financing entails determining the most appropriate funding source, which may include credit from suppliers, bank loans, or converting debtors to cash through the sale of accounts receivable. This can have a positive effect on revenue by effectively managing a corporation's strategic plan to assess its assets and liabilities. Working capital represents a portion of a company's investments used for daily business operations.

Approximately one-third of the company's activities involve managing current assets, while another portion involves managing liabilities. When these two significant components on the balance sheet are effectively balanced by management, it ultimately balances profits and minimizes risks for the company, thus impacting revenue. It is important to properly manage asset accounts like Inventory, Accounts Receivable, Cash, and Marketable Securities in order to boost revenue.

Current Liabilities such as accounts payable, accruals, and Notes Payable need to be effectively managed to boost revenue. Successful management of cash or investments leads to balanced profitability.

The balance between business expenses and assets determines the company's productivity and revenue. A high debt ratio compared to assets puts a company at risk of insolvency, making it difficult for the company to meet its debt obligations.

Risk assessment is crucial for corporations as it incurs a cost and influences the trade-off outcome. The higher the risk, the greater the expected return, considering the assumed risk. To enhance profitability, companies can increase revenues and decrease costs. Implementing strategies to augment revenue and working capital management, such as efficiently handling the cash conversion cycle, play a significant role.

The cash conversion cycle directly affects a company's ability to convert accounts receivable and inventory into cash. A faster conversion of these assets into cash increases liquidity and revenue. By promptly collecting receivables and shortening the collections period, a company can boost its cash flow and revenue. Conversely, extending accounts payable is a beneficial tactic in managing the cash conversion cycle effectively.

Managing Accounts Receivable requires thorough analysis, including the calculation of the Average Collection Period. This measure is obtained by dividing 365 days by the average collection period. A longer period raises concerns about the company's turnover ratio, indicating a significant delay in collecting receivables. Companies must maintain a balance between their liabilities, operational funding, assets, and other accounts. Borrowing from banks is one approach companies use to secure funds.

The company's borrowing capacity relies on their working capital. They can use certain accounts, such as accrued unpaid salaries, as unsecured short-term loan collateral. Accounts receivable and inventory can also be used as collateral for funding. It is important for the company to analyze loan terms in order to minimize

interest expenses and take advantage of early payment and cash discounts, ultimately maximizing profits.

Microsoft has clearly implemented effective account management practices based on past experiences. Key strategies for managing working capital and preparing for future undertakings include: conducting a thorough examination of accounts payable to ensure good credit and secure discounts on rates; comprehending the implications of extending payment timelines without sacrificing credit or cash discounts; and utilizing accruals from wages and taxes.

In order to maximize market value, it is crucial to review and ensure that interest rates are at their lowest possible cost. Additionally, it is important to utilize Inventory and Accounts receivable as collateral while managing them wisely to promote profit growth. Overall, the management of working capital entails extensive research, analysis, and review of all balance sheet and income statement accounts. The company must maintain a balance in these accounts to optimize their revenue and market value. References: Principles of Managerial Finance Chapter 14, 15.