G12 Business Finance

MODULE 2 (WEEK 3-4)

TOOLS IN MANAGING CASH, RECEIVABLES AND INVENTORY

Introduction

Cash management is the stewardship or proper use of an entity’s cash resources. It

assists to keep an organization functioning by making the best of cash or liquid resources of the
organization. Cash management is associated with management of cash in such a way as to
realise the generally accepted objetives of the firm, maximum productivity with maximum
liquidity. It is the management capability to identify cash problems before they ascend, to solve
them when they arise and having made solution available to delegate someone to carry them
out.

The notion of cash management is not new and it has attained a greater significance in
the modern world of business due to change that took place in business operations and ever
increasing difficulties and the cost of borrowing “ Howard,1953). It is the most liquid current
assets, cash is the common denominator to which all current assets can be reduced because
the other current assets i.e receivables and inventory get eventually converted into cash. (Khan,
1983). This emphasises the importance of cash management . The term cash management
denotes to the management of cash resources in such a way that generally accepted business
objectives could be accomplished

Lessons and Coverage

1. Tools in managing cash, receivables and inventory.

WEEK LESSON COMPETENCY (MELC) ACTIVITY

Sept. 7-11,2020 Activity 1.”Define”

Activity 2. Answer Me
Tools in managing Explain tools in
cash, receivables and managing cash Activity 3.”True or
inventory receivables and False”
inventory.

Sept. 14-18,2020
Activity 4.”Reflect
Upon”
Post assessment

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 MODULE MAP

CASH

RECEIVABLES INVENTORY

PAYABLES

Expected Skills

1. Explain tools in managing cash receivables and inventory.

Let us start your journey in learning on the Tools in Managing Cash, Receivables, and Inventory. I am
sure you are ready and excited to answer the Pre-assessment. Smile and Enjoy!

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 PRE- ASSESSMENT

MULTIPLE CHOICE

Choose the letter of the answer to each item/question.Write the letter of your answer in your
activity/answer sheet.

1. Which of the following is true about cash management?

a. A cost of holding cash is the liquidity it gives the firm.

b. A cost of holding cash is the interest income earned on the outstanding cash balance.

c. Effective cash management results in minimization of the total interest earnings involved with
holding cash.

d. The primary objective in cash management is to keep the investment in cash as low as
possible while still operating efficiently and effectively.

2. The speculative motive of holding cash refers to:

a. Utilize cash in internal projects

b. Use for any future loss the company is expecting

c. Avail of any future investment opportunity

d. Utilize cash for international project

3. It is called liquid assets which include cash and savings that can be converted to cash quickly
and easily.

a. Fixed Assets c. Current Assets

b. Liability d. Equity

4. Net Working Capital is defined as:

a. Total assets minus liabilities

b. Total assets minus equity

c. Current assets minus long-term liabilities

d. Current assets minus current liabilities

5. Inventory management refers to:

a. management and control of inventory

b. management and control of services, inventory, and equipment

c. control of supplies coming into the organization and supplies used

d. control of materials purchased.

Great, you have finished answering the questions. Congratulations and keep on learning.

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 EXPLORE

Activity 1. “Define”

Learning Target: 1. Explain tools in managing cash receivables and inventory.

1. Define working capital in your answer sheet.

FINANCIAL PLANNING TOOLS AND CONCEPTS

The different Working Capital Assets and their importance in the operations of the
company will be discussed in this module. Working capital is the company’s investment in
current assets such as cash, accounts receivable, and inventories while Net Working capital is
the difference between current assets and current liabilities.

This is the flow of the operating cycle of the business.

The operating cycle is the sum of days of inventory and days of receivables. This is how to
compute the Days of Inventory and Days of Receivables. Days of Inventory or inventory
conversion period or average age of inventories is the average number of days to sell its
inventory. A DSI of 20 days means that on the average it takes 20 days to sell its inventory.
Since the Statement of Financial Position tells the financial condition of a company at the end of
the period; we take Average Inventory for the year in our calculation. The formula is:

Purchases are taken from the Statement of Comprehensive Income while Accounts Payables are
taken from the Statement of Financial Position. Since the Statement of Financial Position tells

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the financial condition of a company at the end of the period, we take Average payables for the
year in our calculation.

For purchases, we are generally concerned about the credit purchases so that you may have to
exclude cash purchases from the total sales figure. Working Capital Management is the
administration and control of the company’s working capital. The primary objective is to achieve
a balance between profitability and risk. Basically, there are three types of working capital
financing policies the management can choose from:

1. Maturity-matching working capital financing policy

2. Aggressive working capital financing policy. It should be noted that as the operating cycle
and cash conversion cycle increase, more funds are tied up in the working capital accounts.

3. Conservative working capital financing policy.

Permanent and Temporary Working Capital

Permanent Working Capital is the minimum level of current assets required by a firm to carry-
on its business operations given its production capacity or relevant sales range.

Temporary working capital is the excess of working capital over the permanent working capital
given its production capacity or relevant sales range.

The Working Capital Financing Policies

Financing policies can either be aggressive, conservative or maturity-matching:

Maturity-matching working capital financing policy

Based on the maturity-matching working capital financing policy, permanent working capital
requirements should be financed by long- term sources while temporary working capital
requirements should be financed by short-term sources of financing. Long-term sources of
financing include long-term debt and equity such as common stock and preferred stock. Short-
term sources include short-term loans from a bank. These short-term loans from banks are
called working capital loans which perfectly describe the reasons why these loans are incurred.
In maturity-matching, all permanent working capital must be financed by long-term sources
while temporary working capital requirements should be financed by short-term sources.

Aggressive Working Capital Financing Policy

Under the aggressive working capital financing policy, some of the permanent working capital
requirements are financed by short-term sources of financing.

Why do managers of some companies adopt this policy? It is because long-term sources of
funds have higher cost as compared to short- term sources of financing. By financing some of
the permanent working capital requirements with short-term sources of financing, financing
cost is minimized which in turn, improves net income. But what is the trade-off? Since it is
short-term, the debt has to be paid soon and the company may not yet have enough cash

by the time the debt matures. This refers to liquidity risk and this risk increases with the
aggressive working capital financing policy.

Conservative Working Capital Financing Policy

Based on the conservative working capital financing policy, some of the temporary working
capital requirements are financed by long-term sources of financing. This policy minimizes

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liquidity risk and reduces the company’s profitability because long-term sources of financing
entail higher cost.

Cash

Being the most liquid asset, cash is an important account in the balance sheet that will
affect the liquidity, and solvency of a company. A good internal control must be properly
implemented to safeguard this asset.

A basic internal control system entails the assignment of custodial function and recording
function to separate individuals unless you are the owner. Why is this so? Imagine a cashier of
a company who is also the chief accountant. If tempted, this person can steal cash from the
company and can manipulate the records so that nobody can discover that he is stealing.

Cash collections should be supported by official receipts which are summarized in a daily
collection report. The daily collection report is going to useful for the next control measure for
cash – depositing collections.

If all collections need to be deposited, then payments must be made through a check voucher
system. There must also be two signatories in the check to provide a check and balance.

For small payments like the fare given to a messenger, a petty cash fund is used. A petty cash
fund which should be minimal in amount, will be issued to a petty cash fund custodian, say the
office administrator. The petty cash fund may be PHP10,000 or PHP20,000. Disbursements from
this petty cash funds must be supported by a petty cash voucher signed by the recipient of the
petty cash. When the petty cash fund is almost depleted, the petty cash fund custodian will get
reimbursements. This reimbursement will go through the check voucher system where the
custodian gets a check with the petty cash vouchers as supporting documents.

The check must also be cross-checked by drawing two lines on the payee section of the check.
This cross-checking requires depositing of a check. It cannot be en-cashed. This makes it more
difficult for somebody who stole a check to get the money.

Motives For Holding Cash

These are the following reasons for holding cash:

Primary Reasons

a. Transactional. This is the cash used for paying expenses such as salaries, utilities, rent and
taxes, among others.

b. Compensating balance. This is the cash held to meet bank requirements such as the
minimum cash balance you maintain for checking accounts and if you have existing loans,
banks may also require a minimum amount of deposit with them.

Secondary Reasons

a. Precautionary. This is the cash maintained for emergencies such as the additional cash you
keep during political and economic uncertainties. For example, if your business requires a
substantial amount of importation, a relatively higher amount of cash must be maintained when
the exchange rate becomes highly volatile due to political instability such as what happened
during EDSA II.

b. Speculative. This refers to the cash held by the company to take advantage of opportunities
(e.g. buying stocks during major corrections such as what happened at the height of the global

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financial crisis in 2008 and 2009 where stock valuations went down by as much as 80% for
some companies).

Budgeting Cash

Cash Budget provides information regarding the company’s expected cash receipts and
disbursements over a given period. It is useful for identifying future funding requirements or
excess cash within a given period. This allows managers to find possible sources of financing if
the cash budget shows cash shortage or identify appropriate tenors for money market
placements for excess cash. Normally, a cash budget is prepared for a one year period broken
down into smaller intervals like months. This allows managers to see the seasonality of the
business which affects the cash flows.

Basically, cash budget has the following parts:

Cash Receipts include all a firm’s inflows of cash in each financial period. The most common
components of cash receipts are cash sales, collections of accounts receivable, and other cash
receipts.

Cash Disbursements include all outlays of cash by the firm during a given financial period.
The most common cash disbursements are:

1. Cash purchases

2. Purchasing fixed assets

3. Payments of accounts payable

4. Interest payments

5. Rent (and lease) payments

6. Cash dividend payments

7. Wages and salaries

8. Principal payments (loans)

9. Tax

It is important to recognize that depreciation and other noncash charges are not included in the
cash budget, because they merely represent a scheduled write-off of an earlier cash outflow.

Net Cash Flow, Ending Cash, Financing, and Excess Cash

The firm’s net cash flow is found by subtracting the cash disbursements from cash receipts in
each period. Then we add beginning cash to the net cash flow to determine the ending cash for
each period. Finally, we subtract the desired minimum cash balance from ending cash to find
the required total financing or the excess cash balance. If the computed amount is negative,
the company needs financing. Otherwise, the company has excess cash.

The cash budget is part of planning. It helps managers anticipate future funding requirements
in order to obtain proper financing even before the need arises. This will help them avoid
usurious rates. On the other hand, if the company has excess cash, managers are able identify
the investment instruments that will maximize the returns on the excess cash.

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ACCOUNTS RECEIVABLE

Accounts receivables spring out of the need to sell merchandise. An excellent business
proposition is to generate sales without offering a credit facility to customers. However, this
concept is theoretically sound, but not sustainable. Consider a real estate company which sells
condominium units at PHP5 million per unit. How many units can the property developer sell if
he sells the units only on cash basis? Do you think he can sell a lot? Probably not as many as
compared to providing instalment payments. Credit management strategically defines the
quality of account receivables collection.

The collectability of accounts receivables depends largely on the quality of customers. The
quality of customers depends on the standards or credit policies set up and used by an
organization. Credit policies are an integral part of the credit evaluation and there are 5C’s used
in credit evaluation. These are:

 Character –the willingness of the borrower to repay the loan

 Capacity – a customer’s ability to generate cash flows

 Collateral – security pledged for payment of the loan

 Capital – a customer’s financial resources

 Condition – current economic or business conditions

Proper management of accounts receivable entails having a good billing and collection system.
A good system should lead to the sending of statements of account to customers on time.

Aging of receivables is also a control measure to determine the amount of receivables that are
still outstanding and past due. Accounts which have been past due for more than 90 days have
higher probability to default. The aging of receivables is useful in determining the allowance for
doubtful accounts.

INVENTORY MANAGEMENT

Inventory management involves the formulation and administration of plans and

policies to efficiently and satisfactorily meet production and merchandising requirements and
minimize costs relative to inventories. Effective inventory management becomes critical when
the nature of the products are either perishable (e.g. fruits, vegetables), fragile (e.g. glasses),
or toxic (e.g. bleaching agent).

Proper inventory management involves the determination of reasonable levels of

inventories considering the size and nature of business. Maintaining too much inventories has
costs such as carrying or holding costs, possible obsolescence or spoilage. On the other hand,
too low inventory can result to stock out, and eventually lost sales.

Inventory in A Manufacturing Company

In a manufacturing company, there are three types of inventory: Raw materials –

these are purchased materials not yet put into production; Work in process – these are goods
and labor put into production but not yet finished; and Finished goods – these are goods put
into production and finished. These are ready to be sold.

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FIRM UP

Activity 2 “Answer Me”

Directions: Choose the letter corresponding to the correct answer for each of the questions
provided below.

1. What is a Working capital management?

a. It is the placement of the firm’s debt and equity issues.

b. It is the financing and management of the firm’s current assets.

c. It is also known as inventory management.

d. It is the management of the firm’s capital assets.

2. What is the transactional motive of holding cash?

a. To keep a cash reserve for purchasing goods and services to balance out the cash inflows
and outflows.

b. To keep the cash for all the transactions made during a periodic term.

c. To keep the cash for transactions mandatory for day to day activities.

d. To keep the transactions for foreign trading.

3. Below are all components of working capital except:

a. Cash c. Marketable Securities b. Inventories d. Notes Payable

4. In what order will a company’s current assets appear on a classified balance sheet?

a. Alphabetical order c. From largest to smallest amount

b. Company’s choice d. Order of Liquidity

5. Which of the following would not be important in examining the firm's build-up of accounts
receivable, cash, and current assets:

a. A brief cash budget

b. Cash receipts and cash payments schedules

c. Income Statement

d. Sales forecast

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DEEPEN

Activity 3. “True or False”

Directions: Write TRUE if the statement is CORRECT; Write FALSE if the statement is
INCORRECT.

__________1. Working capital is the same as net working capital.

__________2. The amounts needed to compute a company’s working capital come from
Income Statement.

__________3. The operating cycle for most companies will be longer than one year.

__________4. Accounts Receivable affects the working capital of a company.

__________5.Time as consideration is unimportant in inventory management.

__________6. Current assets should always be financed by current liabilities.

__________7. Account receivable is also known as notes receivable.

___________8. The financial manager of a firm is mostly interested in the company’s available
balance, not its book balance of cash.

__________9. In accounts receivable management, credit analysis is the process of

determining the probability that customers will not pay.

__________10. Current asset is the asset that can be converted into cash within one year.

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REMEMBER

Working capital is the company’s investment in current assets such as cash, accounts
receivable, and inventories while Net Working capital is the difference between current assets
and current liabilities.

Working Capital Management is the administration and control of the company’s working capital
whose objective is to achieve a balance between profitability and risk.

There are three types of working capital financing policies: (1) Maturity-matching working
capital financing policy; (2) Aggressive working capital financing policy; and (3) Conservative
working capital financing policy.

Cash, being the most liquid asset, is an important account in the balance sheet that will affect
the liquidity, and solvency of a company. It is also the most vulnerable when it comes to theft.
A good internal control must be properly implemented to safeguard this asset.

Accounts receivables spring out of the need to sell merchandise. An excellent business
proposition is to generate sales without offering a credit facility to customers. However, this
concept is theoretically sound, but not sustainable. Proper management of accounts receivable
entails having a good billing and collection system.

Objective of Cash Management

1.To make Payment According to Payment Schedule: Firm needs cash to meet its
routine expenses including wages, salary, taxes etc.

2.To minimise Cash Balance: The second objective of cash management is to reduce cash
balance. Excessive amount of cash balance helps in quicker payments, but excessive cash may
remain unused & reduces profitability of business. Contrarily, when cash available with firm is
less, firm is unable to pay its liabilities in time. Therefore optimum level of cash should be
maintained (Excel Books India, 2008).

An effective management is considered to be important for the following reasons:

1.Cash management guarantees that the firm has sufficient cash during peak times for
purchase and for other purposes.

2.Cash management supports to meet obligatory cash out flows when they fall due.

3.Cash management helps in planning capital expenditure projects.

4.Cash management helps to organize for outside financing at favourable terms and conditions,
if necessary.

5.Cash management helps to allow the firm to take advantage of discount, special purchases
and business opportunities.

6.Cash management helps to invest surplus cash for short or long-term periods to keep the idle
funds fully employed.

General Principles of Cash Management

Harry Gross has recommended certain general principles of cash management.

1.Determinable Variations of Cash Needs: A reasonable amount of funds, in the form of

cash is required to be kept aside to overcome the period expected as the period of cash
shortage. This period may either be short and temporary or last for a longer duration of time.

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Normal and regular payment of cash leads to small cutbacks in the cash balance at periodic
intervals. Making this payment to different workers on different days of a week can balance
these reductions. Another practice for balancing the level of cash is to schedule cash
disbursements to creditors during the period when accounts receivables collected amounts to a
large sum but without putting the helpfulness at stake.

2.Contingency Cash Requirement: There may arise certain cases, which fall beyond the
forecast of the management. These establish unexpected calamities, which are too difficult to
be provided in the normal course of the business. Such contingencies always demand for
special cash requirements that was not assessed and provided for in the cash budget. Denials
of wholesale product, huge amount of bad debts, strikes, and lockouts are some of these
contingencies. Only a prior experience and investigation of other similar companies prove
supportive as a customary practice. A useful procedure is to shield the business from such
calamities like bad-debt losses, fire by way of insurance coverage.

3.Availability of External Cash: This factor also has immense significance in the cash
management which refer to the availability of funds from outside sources. There resources help
in providing credit facility to the firm, which materialized the firm's objectives of holding
minimum cash balance. As such if a firm succeeds in obtaining sufficient funds from external
sources such as banks or private financers, shareholders, government agencies, the need to
maintain cash reserves lessens.

4.Maximizing Cash Receipts: Nearly, all financial managers have objective to make the best
possible use of cash receipts. Cash receipts if tackled carefully results in minimizing cash
requirements of a concern. For this purpose, the comparative cost of granting cash discount to
customer and the policy of charging interest expense for borrowing must be appraised
continually to determine the ineffectiveness of either of the alternative or both of them during
that particular period for maximizing cash receipts. Some techniques proved helpful in this
context are mentioned below:

A.Concentration Banking: In this system, a company launches banking centres for collection of
cash in different areas. Thus, the company instructs its customers of neighbouring areas to
send their payments to those centres. The collection amount is then deposited with the local
bank by these centres as early as possible. Whereby, the collected funds are transferred to the
company's central bank accounts operated by the head office.

B.Local Box System: Under this system, a company rents out the local post offices boxes of
different cities and the customers are asked to forward their remittances to it. These
remittances are picked by the approved lock bank from these boxes to be transferred to the
company's central bank operated by the head office.

C.Reviewing Credit Procedures: This type of technique assists to determine the impact of slow
payers and bad debtors on cash. The accounts of slow paying customers should be revised to
determine the volume of cash tied up. Besides this, evaluation of credit policy must also be
conducted for introducing essential modifications. As a matter of fact, too strict a credit policy
involves rejections of sales. Thus, restricting the cash inflow. On the other hand, too lenient, a
credit policy would increase the number of slow payments and bad debts again reducing the
cash inflows.

D.Minimizing Credit Period: Shortening the terms allowed to the customers would definitely
quicken the cash inflow side-by-side reviewing the discount offered would prevent the
customers from using the credit for financing their own operations gainfully.

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E.Others: There is a need to introduce various procedures for managing large to very large
remittances or foreign remittances such as, persona pick up of large sum of cash using airmail,
special delivery and similar techniques to accelerate such collections.

5.Minimizing Cash Disbursements: The intention to minimize cash payments is the ultimate
benefit derived from maximizing cash receipts. Cash disbursement can be brought under control
by stopping deceitful practices, serving time draft to creditors of large sum, making staggered
payments to creditors and for payrolls.

6.Maximizing Cash Utilization: It is emphasized by financial experts that suitable and optimum
utilization leads to maximizing cash receipts and minimizing cash payments. At times, a concern
finds itself with funds in excess of its requirement, which lay idle without bringing any return to
it. At the same time, the concern finds it imprudent to dispose it, as the concern shall soon
need it. In such conditions, company must invest these funds in some interest bearing
securities. Gitman suggested some fundamental procedures, which helps in managing cash if
employed by the cash management. These include:

1.Pay accounts payables as late as possible without damaging the firm's credit rating, but take
advantage of the favourable cash discount, if any.

2.Turnover, the inventories as quickly as possible, avoiding stock outs that might result in
shutting down the productions line or loss of sales.

3.Collect accounts receivables as early as possible without losing future loss sales because of
high-pressure collections techniques. Cash discounts, if they are economically justifiable, may
be used to accomplish this objective (Gitman, 1979.).

Function of Cash Management

It is well acknowledged in financial reports and various studies that cash management is
concerned with minimizing fruitless cash balances, investing temporarily excess cash usefully
and to make the best possible arrangements for meeting planned and unexpected demands on
the firm's cash (Hunt, 1966). Cash Management must have objective to reduce the required
level of cash but minimize the risk of being unable to discharge claims against the company as
they arise. There are five cash management functions:

1.Cash Planning: Experts emphases the wise planning of funds that can lead to huge success.
For any management decision, planning is the primary requirement. According to theorists,
"Planning is basically an intellectual process, a mental pre-disposition to do things in an orderly
way, to think before acting and to act in the light of facts rather than of a guess." Cash
planning is a practise, which comprises of planning for and controlling of cash. It is a
management process of predicting the future need of cash, its available resources and various
uses for a specified period. Cash planning deals at length with formulation of necessary cash
policies and procedures in order to perform business process constantly. A good cash planning
aims at providing cash, not only for regular but also for irregular and abnormal requirements.

2.Managing Cash Flows: Second function of cash management is to properly manage cash
flows. It means to manage efficiently the flow of cash coming inside the business i.e. cash
inflow and cash moving out of the business i.e. cash outflow. These two can be effectively
managed when a firm succeeds in increasing the rate of cash inflow together with minimizing
the cash outflow. As observed accelerating collections, avoiding excessive inventories,
improving control over payments contribute to better management of cash. Whereby, a
business can protect cash and thereof would require lesser cash balance for its operations.

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3.Controlling the Cash Flows: It has been observed that prediction is not an exact knowledge
because it is based on certain conventions. Therefore, cash planning will unavoidably be at
variance with the results actually obtained. Due to this, control becomes an unavoidable
function of cash management. Moreover, cash controlling becomes indispensable as it increases
the availability of usable cash from within the enterprise. It is understandable that greater the
speed of cash flow cycle, greater would be the number of times a firm can convert its goods
and services into cash and so lesser will be the cash requirement to finance the desired volume
of business during that period. Additionally, every business is in possession of some concealed
cash, which if traced out significantly decreases the cash requirement of the enterprise.

4.Optimizing the Cash Level: It is important that a financial manager must focus to maintain
sound liquidity position i.e. cash level. All his efforts relating to planning, managing and
controlling cash should be diverted towards maintaining an optimum level of cash. The prime
need of maintaining optimum level of cash is to meet all requirements and to settle the
obligations well in time. Optimization of cash level may be related to establishing equilibrium
between risk and the related profit expected to be earned by the company.

5.Investing Idle Cash: Idle cash or surplus cash is described as the extra cash inflows over cash
outflows, which do not have any specific operations or any other purpose to solve currently.
Usually, a firm is required to hold cash for meeting working needs facing contingencies and to
maintain as well as develop friendliness of bankers.

In banking area, cash management is a marketing term for some services related to cash flow
offered mainly to huge business customers. It may be used to describe all bank accounts (such
as checking accounts) provided to businesses of a certain size, but it is more often used to
describe specific services such as cash concentration, zero balance accounting, and automated
clearing house facilities. Sometimes, private banking customers are given cash management
services.

Financial instruments involved in cash management include money market funds, treasury bills,
and certificates of deposit.

Benefits of Cash Management System

In the period of technology progression, the Cash Management System provides following
Benefits to its customers:

1.Funds availability as per need on day zero, day one, day two, day three etc. i.e. Corporate
can plan their cash flows.

2.Bank interest saved as instruments are collected faster.

3.Affordable and competitive rates.

4.Single point enquiry for all queries.

5.Pooling of funds at desired locations.

To summarize, Cash Management denotes to the concentration, collection and disbursement of

cash. The major role for managers is to maintain the flow of cash. Cash Management include a
series of activities aimed at competently handling the inflow and outflow of cash. This mainly
involves diverting cash from where it is to where it is needed. It is established that cash
management is the optimization of cash flows, balances and short-term investments.

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TRANSFER

Piolo Pascual: The frugal, private person behind the bankable movie star.

Everybody knows Piolo Pascual. In a nutshell, the story tells the bittersweet tale of a 19-year
old overseas Filipino who had to work double shifts and 16-hour duties as a hospital worker by
day and a security guard at night just to make ends meet.

At present, he is the endorser of BDO Remit. In one of its webinars, Piolo talks about the
importance of saving and how a movie star like him has been managing his finances during the
quarantine period.

“Saving has been an important practice in our family. When I was in school and began working,
it was the practical thing to do. You save up for things you want to buy. If you have money
saved, you will have something to bank on when unexpected situations happen, such as this
pandemic. I knew I had to set aside something for a rainy day and save money that I can use
when I do not have anything else. So, ever since I started working, puro savings na talaga ako,
I made sure I was not sure spending beyond what I could afford. I never changed my lifestyle.
I have always lived a simple life,” Piolo said.

“I invested in farming because it is a nice feeling to grow your own crops or eat your own
produce. Nag-invest ako sa mga bagay na pwede mong paikutin. I now have 18 chickens na
galling sa farm ko para yun na lang ang kakainin naming. Mas nakakatipid ka pa. We were
going to sell them during the lockdown dahil ang dami na ngang manok. So, they were not just
for us. We also share them with friends,” Piolo added.

Source: Philippine Daily Inquirer

Activity 4. “Reflect Upon”

Questions: Analyze Piolo’s testimony on his saving and spending experience? How it has
influenced your view on managing finances? Use another sheet of paper for your answer.

_______________________________________________________________________

_______________________________________________________________________

____________________________________________________________________________

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 POST ASSESSMENT

MULTIPLE CHOICE

Choose the letter of the answer to each item/question.Write the letter of your answer in your
activity/answer sheet.

1. Which of the following is true about cash management?

a. A cost of holding cash is the liquidity it gives the firm.

b. A cost of holding cash is the interest income earned on the outstanding cash balance.

c. Effective cash management results in minimization of the total interest earnings involved with
holding cash.

d. The primary objective in cash management is to keep the investment in cash as low as
possible while still operating efficiently and effectively.

2. The speculative motive of holding cash refers to:

a. Utilize cash in internal projects

b. Use for any future loss the company is expecting

c. Avail of any future investment opportunity

d. Utilize cash for international project

3. It is called liquid assets which include cash and savings that can be converted to cash quickly
and easily.

a. Fixed Assets c. Current Assets

b. Liability d. Equity

4. Net Working Capital is defined as:

a. Total assets minus liabilities

b. Total assets minus equity

c. Current assets minus long-term liabilities

d. Current assets minus current liabilities

5. Inventory management refers to:

a. management and control of inventory

b. management and control of services, inventory, and equipment

c. control of supplies coming into the organization and supplies used

d. control of materials purchased.

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SAMPLE FORMAT OF ANSWER/ACTIVITY SHEET

Name _________________________________ Grade Level and section

__________________

Lesson No. ___ Activity No. ___Title of the

Activity____________________________________

Date accomplished _________________Parent/Guardian’s

Signature______________________

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REFERENCES:

To further explore the concept learned today and if it possible to connect the internet, you may
visit the following links:

https://www.slideshare.net/ipermeeta/working-capital-management-4632140
https://www.slideshare.net/neerajchitkara/cash-management-13919917

Asilo, R. (2020). Piolo Pascual: the frugal, private person behind the bankable movie star.
Philippine Daily Inquirer, Entertainment Section, July 8,2020 issue.

Cayanan, A. & Borja (forthcoming). Business Finance. Quezon City. Rex Bookstore.

Civil Service India. (2020). Management of cash, receivables, inventory,and current liabilities.
Retrieved on July 11, 20202 from
https://www.civilserviceindia.com/subject/Management/notes/management-of-
cash.html#:~:text=Management%20of%20Cash%2C%20Receivables% 2C%20Inventory,good
%20balance%20of%20these%20factors.

Gitman, L. J. & Zutter C. J. (2012), Principles of Managerial Finance (13th Ed), USA: Prentice-
Hall

Wikipedia. (2020). Piolo Pascual. Retrieved on July 11, 2020 from

https://en.wikipedia.org/wiki/Piolo_Pascual

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