The term ‘Principal-agent relationship’ or just simply, ‘Agency relationship’ is used to describe an arrangement where one entity, the principal, legally appoints another entity, the agent, to act on its behalf by providing a service or performing a particular task….

Corporate governance systems can be influenced by several stakeholder groups which may or may not have conflicting interests. A company’s primary stakeholder groups include its shareholders, creditors, managers, other employees, customers, suppliers, governments or regulators, and its board of directors….

Corporate governance may be defined as the system of internal controls, processes, and procedures by which a company is managed, directed, or controlled. Weak corporate governance practices have resulted in the failures of many companies. The corporate governance practices tend…

Regular assessment of short-term funding aims to ensure that a company has the ability to handle peak cash needs and maintain sufficient sources of credit to fund ongoing cash needs. Short-term Funding The short-term funding alternatives that are available to…

It is crucial that a company effectively manages its accounts receivables, inventory positions, and accounts payables. If not, the company could find itself in a consistent loss-making position, which will place doubts on its ability to continue in business as…

Whenever a company has surplus funds, i.e., funds that are not needed to complete daily transactions, it may choose to invest these funds on a short-term basis to generate extra funds. These short-term investments usually consist of investments in securities…

On a typical day, a company will have several instances of both cash outflows and cash inflows. These cash flows, however, do not offset each other and a company is left with a net cash position daily that can be…

A company’s number of days of payables, number of days of receivables, and number of days of inventory may be combined to indicate its operating cycle and net operating cycle. The operating cycle and net operating cycle are two measures…

A company’s liquidity is measured by the extent to which it has current assets, i.e., cash, marketable securities, accounts receivable and inventory which can be readily used to satisfy its short-term obligations. Measuring Liquidity Liquidity ratios assist in measuring the…

Liquidity management describes a company’s ability to generate cash when needed to meet its short-term obligations. Effective liquidity management means that a company can manage its major sources of liquidity efficiently. Although these major sources tend to vary from one…