Compounding effect and Liquidity management: Difference between pages

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The additional growth or additional interest, resulting from the compounding effects of - for example - interest on interest.
The analysis and management of an organisation's working capital and its sources of finance to ensure that it is able to pay its obligations when they fall due.


Another example is the compounding effect of growth on growth.


== See also ==
* [[Liquidity]]
* [[Working capital]]
* [[Cash management]]


For example, interest quoted at 6% per annum, compounded annually, for two years maturity, means that the interest accumulated after two years is:
= [1.06 x 1.06] - 1
= 12.36% for the two year period.
Without the additional interest on interest, the total interest would have been simply
6% per annum x 2 years
= 12.00%.


== Other links ==
[http://www.treasurers.org/investingcash Investing liquid funds - ACT briefing notes 2009]


So the compounding effect of interest on interest here
[[Category:Treasury_operations]]
 
[[Category:Liquidity_management]]
= 12.36% - 12.00%
 
= 0.36% over the two year period (= 6% x 6%).
 
 
When both the number of periods and the rate of growth/interest are low, compounding effects are relatively small.
When either the number of periods or the rate of growth/interest - or both - are greater, compounding effects become very much larger.
 
 
== See also ==
* [[Compound interest]]
* [[Compounding factor]]
* [[Continuously compounded rate of return]]
 
[[Category:Manage_risks]]

Revision as of 12:19, 19 November 2014

The analysis and management of an organisation's working capital and its sources of finance to ensure that it is able to pay its obligations when they fall due.


See also


Other links

Investing liquid funds - ACT briefing notes 2009

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