Working Capital And Regulatory Bodies

Working Capital and Regulatory Bodies

Working capital and maintenance of government regulations are among the many requirements to maintaining a profitable and sustainable organization. While organizations vary in size from entrepreneurs and start-up companies to well-established business organizations, none have an endless river of funds to keep the business afloat and operating without concern for finances. Most businesses function on limited financial investment and rely on the profitability of the organization to stay viable. The US government has many regulatory entities who work to monitor legal compliance that has been created over the years to build confidence in businesses that are head-quartered here in the Unite States.

Working Capital

"Working capital is a valuation metric that is calculated as current assets minus current liabilities. Also known as operating capital, or net working capital, it represents the day-to-day operating liquidity available to a business" (Unknown, 2005). This definition of working capital highlights the focus on current assets and current liabilities. Balancing and management of assets and liabilities of the company are the foundation for the prosperity and longevity of the organization.

Working capital, for this purpose, represents assets and liabilities which are able to be resolved within 12 calendar months. "The most important current assets are cash, marketable securities, inventory and accounts receivable. The most important current liabilities are bank loans and accounts payable" (Brealey, Stewart and Marcus, 2003).

In comparing Humana and UHG's most recent financial statements, the following numbers were presented:

Humana UHG

2005 2005

Current Assets 4,206,186 10,640,000

(-) Current Liabilities 3,219,590 16,644,000

(=) Working Capital 986,596 (-) 6,004,000

Humana's stance for working capital is healthy, where UHG's profile presents serious concerns for the company. Since working capital, "usually finances the cash conversion of a business - the time required to convert raw materials into finished goods, finished goods into sales, and accounts receivable into cash" (Unknown, 2005), and since neither company utilizes raw materials nor produces a finished good, the working capital plays a lesser role in the managements of these organizations.

Financial Intermediaries and Regulatory Bodies

In the U.S. there are five financial and regulatory agencies. In no particular order, they are the Commodities Futures Trading Commission (CFTC), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Security and Exchange Commission (SEC), and the Federal Reserve Board (United States Department of The Treasury, 2007).

These regulatory agencies have been created to fulfill various tasks. Some of these organizations protect investors and the public from fraud while others preserve and promote public confidence in the U.S. financial system. Furthermore, other agencies provide the nation with a more stable financial system by regulating and supervising all national banks. Although the tasks of these agencies vary, each has the same initiative in mind; to encourage open, competitive, and financially sound markets.

Functions

Health care coverage and health care management services are heavily regulated at both the federal and state levels. Regulatory agencies usually have extensive diplomacy to issue regulations. These agencies also have the power to interpret and enforce these regulations. Changes in applicable laws and regulations are continually being considered and the interpretation of existing laws and rules change periodically. "These regulatory revisions could dramatically affect a company's operations and financial results" (Edgar Online, 2006).

"Government actions could result in assessment of damages, civil or criminal fines or penalties, or other sanctions, including exclusion from participation in government programs" (United Health Group, 1999). The Sarbanes-Oxley Act of 2002 (SOX) is an example of one such government action. "These rules require officers to certify that they are responsible for establishing, maintaining and regularly