Liquidity Analysis and Management [antikvár]

CHAPTER 1 Introduction to Liquidity Management Liquidity management is the allocation of liquid resources over time for payment oj obligations due and for various investments that management undertakes lo maximize shareholder wealth. Ttiis definition emphasizes the dynamic nature of liquidity management, that is, the providing of resources at times when they are needed and the control of various financial risks, especially that of insolvency. Liquidity management is frequendy thought to be synonymous with net working capital (NWC) management — the management of current assets and current liabilities. Such a view fails to capture the true nature of liquidity management. NWC management (or as it is popularly known, short-term financial management) is a subset of liquidity management. It is through liquidity management that NWC management is linked with long-term financial management and wealth maximization for shareholders. This will become apparent as you learn about different profit concepts, cash How analysis, techniques for evaluating liquidity, how to account for off-balance-sheet financing, and how to monetize assets, among other tilings. History is replete with examples of good and bad management. Periods of economic recession are generally perceived to be times of liquidity problems. However, periods of economic prosperity have also proven to be burdens to prudent liquidity management. Economic growth, whether inflationary or real, drains cash. Participating in a strong market is exciting, but keeping up with the pace requires liquid resources. Even if real market growth is zero, inflation may consume limited financial resources almost as quickly as real growth. The failure of management to provide adequate liquid resources to finance growth objectives and meet liabilities as they