Thursday, July 25, 2013

The boat that rocks !!

Remember the movie with same name? Well, let me put the disclaimer right away - NOT RELATED to today's post :-P

So, we had operational management class today, where everyone was told to make paper planes of desired quality, adopting TQM practices, followed by Managerial Accounting class by Luis. Today, Luis explained many concepts from cost centers, revenue centers to Inorganic and Organic costing, in real simple terms and with common life examples. It was an interesting session today where we got an insight on various cost cutting measures that company management adopts.

What was more interesting was the Investment Analysis class which came after Managerial Accounting. Luis S. explained us the concept of Net Operating Working Capital and the entire session today revolved around this concept. Thanks to the fact that I was among the few countable folks who had done their homework, I could follow the session so well and almost all my answers were correct, the one which was different was correct in its own respect, and Luis was kind to explain me how his answer is different.

This has become my favorite subject of this term, thanks to the fact that we get to apply all that we have been learning - from financial accounting to strategy to decision making - and understand how investment decisions can be made for large corporations; plus it has so many numbers to play with :-)

Luis made an excellent comparison of liquidity and working capital requirement/efficiency of operations today.
He gave example of rafters and told how many people prefer to do white water rafting in rainy season instead of in summer. The reason being, the level of water is higher in rainy season, which hides the rocks that would be more evident during summer.

Well, his argument was that Liquidity is like the water level and rocks are inefficiencies in operations and spending. And the appeal was, don't wait for the summer to come when liquidity dries up and inefficiencies become issues - don't wait for the crisis. steer your company off the rough waters and get rid of inefficiencies now - when the liquidity is still high.

Amazing lesson for the day :-)

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