Cash and Working Capital

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29 February 2016

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1. What are four general phases of the working capital cycle? Four general phases of working cycle are:
a. Purchasing of resources: relates to the acquisition of supplies and labor, such as the level of inventory necessary to maintain realistic production schedules and the staff required to ensure adequate provision of services. b. Production/sale of service: healthcare services, no inventory. c. Billing: refers to the release or discharge of a patient and the generation of a bill. d. Collection: the generation of a bill and the actual collection of the cash from the patient or the patient’s third-party payer.

2. What are the three primary sources of short-term funds?

Three primary sources of short-term funds are:
a. Single-payment loan: a loan that requires the payment repaid at the end of its duration instead of in monthly installments.
b. Line of credit: agreement that permits a firm to borrow up to a specified limit during a defined loan period.
c. Revolving credit agreement: similar to a line of credit except that it is usually for a period longer than 1 year.

3. An organization’s short-term investment options for idle cash include what four areas? List and provide their characteristics
a. Short-term working capital needs: a business needs funds to handle the standard and usual expenses associated with the operation of the company. It is safe to assume that most healthcare firms should carry approximately 20 days of expected cash transactions at any point in time to meet normal short-term working capital needs for cash. However, it is not safe to say that a not-for-profit healthcare firm would need only 20 days of cash.
b. Capital investment needs: a non-profit healthcare organization needs funds to finance replacement and renovation of existing capital assets as well as investment in new product and service line areas. Different from taxable firm and investor-owned healthcare firm, the organization must routinely set aside funds for replacement and the amount of money reserved depends on percentage of debt financing to be used and projected future levels of capital expenditures.
c. Contingencies: a business needs funds to handle unexpected demands for cash flow, also called contingency funds. The amount of money reserved reflects the company’s tolerance of risk.
d. Supplement Operating Earnings: non-profit healthcare organization needs funds to provide a dependable flow of investment earnings that can be used to supplement expected weaknesses in operating earnings. This helps to prevent significant deterioration and weak operating margin in operating earnings.

4. Discuss the term float.

Float is a brief moment in the banking system where money is counted twice due to delays in processing checks. When a check is deposited, the bank credits a customer’s account and that is when float is created. However, it could take a couple of days for the check to be received and clear by the payer’s bank. During this floating time, the amount on the check appears in both the payee and payer’s account. Also, float can be available shares in a company for trading. These shares are making available to the general public for trading and the company is not liable for how the shares are being traded.


Cleverley, W.O., Cleverley, J.O., Song, H.S. (2011). Essentials of Healthcare Finance (7th Edition). Sudbury, MA: Jones & Bartlett Learning. (n.d.). Retrieved from (n.d.). Retrieved from Tatum, M. (2003). What is short-term working capital?. In B. Harris (Ed.), Copyright Protected: 2003-2014 Conjecture Corporation.

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"Cash and Working Capital" StudyScroll, Feb 29, 2016.

"Cash and Working Capital" StudyScroll, 29-Feb-2016. [Online]. Available: [Accessed: 24-Mar-2023]

StudyScroll. (2016). Cash and Working Capital. [Online]. Available at: [Accessed: 24-Mar-2023]

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