Managing Capital

When businesses speak of managing capital or working capital, typically we are talking about one of two things: Finding sources of capital through banks, financial institutions, venture capital, seed capital, angel investors and the like; or Managing the ways a business uses capital - this discussion tends to be around managing working capital. What is working capital? Working capital is the amount of money your business requires to operate. Working capital management solutions are usually information technology solutions that will help track financial performance as well as process performance. Inefficient processes can lead to excessive use of cash, so improving those processes is like plugging holes in your financial dam, preventing cash from leaking out. The benefit of improving working capital and managing your processes is that the organization is able to free up capital for other activities such as research and development, merger and acquisition activities or paying share-holders dividends. Next, we will look at both sources of working capital and how to improve working capital.

Measuring Working Capital

Working capital performance metrics are powerful indicators on how well a company is managing Working Capital and managing the company overall. These metrics not only highlight the drivers of Working Capital, but also shed light on the dynamics of a supply chain. It shows how well a company manages their inventory, receivables and payables. There are many metrics that can shed light on how well a company is managing these three areas. In addition to custom metrics developed as part of your initiative, below are some of the metrics that a company might want to see in order to measure their success.

1. Cash Conversion Cycle (CCC) – A negative cash conversion cycle makes Working Capital a source of cash and highlights how well a company is being managed. CCC = DSO + DIO – DPO
2. Days Sales Outstanding (DSO) – measures the time between the close of a sale and the collection of payment.
3. Days Inventory Outstanding (DIO) – measures the amount of time items stay in inventory.
4. Days Purchasing Outstanding (DPO) – measures the amount of time a company takes to pay their vendors.
5. Inventory Turns – measures how well inventory is managed and how the rate at which inventory turns over.
6. Open AP – amount of accounts payable that needs to be paid.
7. Open AR – amount of accounts receivable in which the cash has not yet been received from your customers.
8. Purchase lead-time –This is defined as the time period from placing the order to time by which the raw materials arrive at the store. This lead-time is use full in deciding upon the level for the reorder point.
9. Manufacturing lead-time – This is defined as the time taken by the manufacturing systems to finish the product. This time includes the process time taken at each workstation, and travel time between the workstation.
10. Delivery lead time/ response time – This is the time period from receiving the order to dispatching the finished goods.
11. On-Time Customer Performance – the measure of how well you meet customer expectation of shipments from orders received by customers.
12. On-Time Vendor Performance – the measure of how well your vendors meet your expectations regarding delivery of raw materials and components.
13. Revenue – recognized sales.
14. Cost of Goods Sold – direct costs such as material costs, material overhead costs, outside processing costs, overhead costs and resource costs.
15. Gross Margins – (Revenue – COGS).
16. Net Margin – takes into account selling price minus cost of goods sold, freight, commissions, royalties, returns, rebates and other costs. Net Margin gives a clearer picture of profitability as compared to gross margins.
17. Cash Flow Projections – is often a rolling number of weeks ( e.g. Rolling 13 weeks) that projects inflows and outflows of cash.
18. Spend – amount that a company purchases raw materials and components from a vendor.
19. Vendor Quality – defines the quality of raw materials and components that is delivered to a customer, sometimes measured in rejects as compared to accepted raw materials and components.

Spousal Student Financial Aid Consolidation Loans

If you are married and you and your spouse have student financial aid loans you can consolidate them into one loan. There are draw-backs in situations like divorse where both are still responsible for the loan and can't be divided by the loan servicer. The spousal consolidation program will end July 1 2006. After June 2006 you will not have this option to consolidate the loans.

Student Loan Refinance Time

The time for student loan consolidation is here. Saturday July 1 is the day the rates go up. I have heard that law makers are trying to change the deadline but I have not heard of any new legislation so the rates are going to change on student loans and financial aid for students. I called my loan consolidation professional a while back but found that my student loan balances are too low to consolidate with their programs.

Can you go to college without financial aid?

With the averatge cost of attending a public university being roughly $67,000 for four years (let's round that to $17,000 per year) how many people (and who are they) can afford school without financial aid? If you are lucky you can land a grant or scholarship. According to an article from USNews.com, only half of students get any kind of grant or scolarship and the aid recieved averages only $4,000 per year. Big help, right? That leaves students and parents with $13,000 per year to cover - if the student got a grant or scholarship.

Even with the assistance of scholarship or grants, that leaves the student straddled with $52,000 in debt when they graduate. Some of us know first hand what it means to carry college debt into the next stages of our lives. And for those of us still carrying this debt, the cost could be going up. On the graduated repayment plan, loan payments increase with time. Unless you consolidate student loans or refinance the loans to lock in an interest rate and payment, you could be subject to these scheduled increases as well as the interest rate changes.

We are facing an interest rate hike on outstanding and future federal student loans on July 1. Students, graduates, and parents should be aware of the changes coming to student loan refinancing interest rates. Students who apply before July 1 can lock in rates of no more than 4.75 percent. Those who graduated more than six months ago can cap their rates at 5.375 percent. And parents with at least one unconsolidated loan can set a ceiling of 6.125 percent on their PLUS loans, saving themselves perhaps $1,000 in payments over the life of a $10,000 loan.

Your Checklist for College

This college preparation check list from Newsweek is probably one of the best resources for students planning to attend college. This is a checklist organized as a calendar with dates for SAT exams and studying, applying for student loans, college applications and more.

College Financial Aid Agencies By State

This is a comprehensive list of State agencies providing students with financial aid resources and access to federal student assistance. Many of these agencies offer solutions for college graduates such as student loan refinancing and loan consolidation.

Federal Deficit Reduction Act, Affecting Student Loan Regulations, Draws Legal Fire

PHOENIX, March 30 /PRNewswire/ -- Public Citizen, a nonprofit consumeradvocacy organization, has moved to take on the Deficit Reduction Act with itsown lawsuit, following the first lawsuit filed in February by an Alabama elderlaw attorney. Filed on March 21, Public Citizen's lawsuit challenges the bill's legalconstitutionality, as does the lawsuit filed by Jim Zeigler of Alabama. Controversy has surrounded the bill since before it was signed into lawFeb. 8 by President Bush. The bill includes major cuts to federal programs,with approximately $12.7 billion in cuts to federal student loans as well ascuts to Medicare and Medicaid. The legal constitutionality of the bill is being challenged due to aclerical error that occurred after approval of the bill and when it was sentto the House. A Senate clerk mistakenly changed wording in the House version.In effect, the Senate version was passed with wording stating that a Medicareprovision would pay for rental of 13 months of certain durable medicalequipment; the House version stated 36 months. Because of the error, manyargue the bill is not law as, according to the Constitution, both the Senateand the House must sign identical versions before a bill is signed into law bythe president. Adina Rosenbaum, a staff attorney at Washington-based Public Citizen,said, "What we've asked for is for the law to be declared unconstitutional."Public Citizen works on issues such as openness and democratic accountabilityin government, and effective, safe affordable healthcare. According to Rosenbaum, although Zeigler and Public Citizen filed lawsuitsin different courts, "What we're asking for is the same thing [as Zeigler]." "The ways we've been injured by the law are different," Rosenbaum said."The provisions that affect us and the provisions that affect him [Zeigler]are different, but in the end, he's also asking for the law to be declaredunconstitutional because it didn't pass the House and Senate in the sameversion." As the Deficit Reduction Act is "a law that affects millions of people,"she said, it would not be surprising for others to follow and challenge thebill. Zeigler said that many people and businesses have been affected by thebill and expects more lawsuits. He added that student loan companies couldjoin in as some have made inquiries. NOTE: Zeigler's lawsuit is Civil Action: 2006-80 and was filed in theU.S. District Court for the Southern District of Alabama. Public Citizen caseis: Case No. 06-00523, filed in the U.S. District Court for the District ofColumbia.

Changes in the Federal Deficit Reduction Act Affect Student Loan Refinance and Student Loan Consolidation

The act eliminates in-school and “super-two-step” consolidations – Currently, Direct Loan borrowers may consolidate any eligible college loans that have been fully disbursed even if the borrowers have not yet entered a repayment or grace period (i.e., the student borrower may still be in their in-school period when consolidating). The “super two-step” was the ability of students to refinance a consolidation loan by consolidating out of Federal Family Education Loan Program (FFELP) into Direct Lending, then back out of Direct Loans to a Federal Family Education Loan Program (FFELP) loan.

Loan Consolidation and Refinancing is Important as Federal Government Raises Interest Rates on Federal Student Loans

Long-anticipated legislation signed by President Bush raises interest rates on student loans starting July 1. The bill is a deficit-reduction bill that will cut $11.9 billion from the federal student loan program over the next five years. With college tuitions rising, students are being forced to take on more student loans as the cost of a college education and college loans will become more expensive.