Cash and Working Capital

Working capital cycle

The working capital cycle is that period between investing in a product or service and receiving payment for that product or service. The cycle begins at the point when the business purchases raw material or hires people for service, and it ends when the customer makes payments (Khajavi & Ghoohestani, 2015).

Phases of the Working Capital Cycle

There are four phases in the working capital cycle. These include the purchase of production resources, production and sale of goods and services, billing and collection. During the purchase of resources phase, a heath care organization acquires supplies and labor, which it then uses in phase two of the cycle to produce the goods and services to its patients. Billing is the third phase of the cycle, and it covers the period between a patient’s admission to his release. The billing department tracks all the costs incurred by the patient, sums it up and drafts a bill for the patient. The final phase entails the collection of the money the patient owes the health care organization (Khajavi & Ghoohestani, 2015).

Primary Sources Of Short-Term Funds

Similar to any other organization, health care organizations require funding. The funding needs for these organizations can either be short-term or long-term. Short-term sources of funding include Accounts payable and accruals, commercial papers and lines of credit. Accounts payable and accruals are unstructured interest-free sources of financing from the normal course of business which depend on the given terms. A Commercial paper is a short-term financial instrument issued in the form of unsecured promissory notes, and it has a fixed maturity date. A line of credit refers to an agreement that allows a firm to borrow up to a specifically limited amount for a defined loan period (Mann, 2012).

Short-term Investment Options for Idle Cash

Health Care organiozations are permitted by law to invest their idle cash in projects that would generate some returns for the organizations. Some examples of short-term investment options for the organization’s idle cash include Treasury bills (T-bills), Negotiable Certificates of Deposit (CD), Commercial Papers and banker;s acceptances. T-bills are very marketable money market security. Their simplicity has led to their popularity. . They are short-term securities that mature in one year or less from their date of issuance. T-bills are issued in the schedules of three-month, six-month or one-year maturities (Mann, 2012).

CDs are promissory notes given by a bank and they bar the account holder from withdrawing the funds on demand and in return, the account holder earns some interest on the deposits. Healthcare organizations can also invest in commercial papers, which are short-term financial instruments issued in the form of unsecured promissory notes and they have fixed maturity dates. Banker’s acceptances are short-term debt instruments issued by a firm and guaranteed by a commercial bank (Mann, 2012).

Definition of the term “Float”

The term float refers to the total number of shares publicly owned and available for trading. It is normally derived by subtracting the number of restricted shares from the number of outstanding shares. Any company’s float is an important number for investors. It is an indication of how many shares are available for trading by the investing public in general. The trading of shares in the float by the public is a function of the secondary market but not the company. The float is neither affected by the creation nor trading options on a stock (Perez, 2014).  




Khajavi, S., & Ghoohestani, S. (2015). The Effects of Cash Flow Uncertainty and Working Capital on Non-Cash Flow Shock Returns. IBR, 8(4).

Mann, D. (2012). Why We Fight: Understanding Military Participation over the Life Cycle. Journal Of Human Capital, 6(4), 279-315.

Perez, K. (2014). Polish Absolute Return Funds And Stock Funds. Short And Long Term Performance Comparison. Folia Oeconomica Stetinensia, 14(2).


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