4. working capital management
TRANSCRIPT
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NOOR HAMIZAH BT HAJI BAHARIN (Introduction)
NURUL ARAFAH BT ISHAK (Current assets)
TEO KIEN HEE
IRAJ NIKOOKAR( SHORT TERM FINANCING)
OMID ASHOORI
MEHDI HAJ ALI LARIJANI
ATHIRA BT (Cash conservation cycle )
SUHAILI BT SAADON
WORKING CAPITAL
MANAGEMENT
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INTRODUCTION OF WORKING
CAPITAL MANAGEMENT
PRESENT BY :
NOOR HAMIZAH BTE BAHARIN
(MA101315)
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NOOR HAMIZAH
The expression working capital is used in
different senses by different people. Strictly
speaking, all capital supplied by shareholders and
creditors to a business enterprise works byearning revenues, providing finance for expansion,
being invested in new assets and used up in
discharging obligations incurred in the course of
everyday operations.
INTRODUCTION
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NOOR HAMIZAH
Theconceptof working capital is associatedwith current assets, which include cash, near-cash (eg: short term securities ) and trading non-monetaryassets such as stocks, work-in-progress and debtors.
A proportion of funds required for investment inthese assets is provided by suppliers and short termcreditors, while the remainderthe difference
between the total current assets and the totalcurrent liabilities must be financed frompermanent capital.
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DEFINITION
A firms working capital comprises of its currentassets minus current liabilities. Current assets
comprise principally of inventories, accounts
receivables, cash and short term securities. These
assets are termed current as the assetsconcerned can be converted into cash within one
year or less. Current liabilities, on the other hand,
comprise principally of account payable, accruals,
short-term borrowing and taxes payable. These
are obligation owed by the firm that are expected
to come due within one year or less. Net working
capital is defined as the differences between the
firms current assets and current liabilities.
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NOOR HAMIZAH
Working capital, therefore, can be
defined as the net balance of current
operating assets or the surplus of
current assets over current liabilities.
This is a usual standard definition.
A balance sheet is a static picture of
net assets employed in a company,
and how they are financed, at a given
point in time
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SAMPLE OF BALANCE SHEET
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NOOR HAMIZAH
BENEFIT
To keep stocks and debtors at
the lowest possible levelconsistent with the efficientoperation of the business. A
chronic shortage of stock or anunwillingness to extend the
usual credit terms to customers
could seriously hinder therunning of the company
To obtain the largestpossible amount of
credit that the suppliersare willing to grant,
consistent withoptimum buying
principles.
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CURRENT ASSETS AND CURRENT
LIABILITIES
PRESENT BY :
NURUL ARAFAH ISHAK
TEO KIEN HEE
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Learning Objectives Important Terms
Cash Management
Reasons for Holding Cash
Determining the Optimal Cash Balance Cash Management Techniques
Accounts Receivable Management
The Credit Decision
Credit Policies
The Collection Process Inventory Management
Inventory Management Approaches
Evaluating Inventory Management
TEO KIEN HEE
Lecture Agenda
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LEARNING OBJECTIVES
You should understand the following:
How to manage individual asset items, such as cash,
receivables, and inventory
The nature of the major sources of short-termfinancing, such as trade credit, bank loans, factoring
arrangements, and money market securities
The fact that in evaluating current asset and currentliability decisions, the final decision rests on the
standard problem of trading off expected benefits
and potential costs
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Cash and Marketable Securities
Working Capital Management
Current Assets and Current
Liabilities
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Gross Working Capital : (Current Assets)
New Working Capital : (Current Assets - Current
Liabilities) Working Capital Management
Involves investing in current assets and financing of
current assets:
Current
Liabilities
Long-Term
Financing
Current Asset
Investment
Working Capital Management:An Overview
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Transactions motive
-To meet cash needs that
normally arise from doing
business
Precautionary motive
-To meet any unexpected
need for cash
Speculative motive
-To take advantage of
potential profit making
situations
Reasons for Holding Cash
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The optimal cash balance is the amount of cash that
balances the risks of illiquidity against the sacrifice in
expected return that is associated with maintaining
cash.
Differs substantially across firms
Firms with predictable cash flows will have
lower optimal cash balance requirement Firms with excess borrowing capacity (unused
line of credit for example) can hold less cash.
Determining the Optimal CashBalance
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Cash flow synchronization can free up cash (and lower theamount of capital a firm requires)
This is done by:
Speeding Up Cash Inflows :
Bill clients earlier each month
Increase cash sales through incentives
Encourage customers to pay using electronic paymentssystems such as direct deposit, automatic debit, debitcard, rather than cheque.
Delaying Outflows :
Arrange with suppliers for more liberal trade creditterms (net 40 rather than net 30 for example)
Paying employees once a month rather than twice.
Cash ManagementTechniques
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Cash Managements
Float is the time that elapses between the time the paying firminitiates payment, and the time the funds are available for use bythe receiving firm.
Float has been reduced or eliminated through:
Debit cards
Preauthorized payments Electronic funds transfer (EFT) and electronic data interchange
(EDI) systems.
Float
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Everything else remaining the same, higher levels of current
assets mean lower risk and lower expected return
Lower Risk
Greater ability to meet short-run obligations.
Lower Return
Cash and marketable securities typically yield low returns.
Furthermore, when current assets are increased,
additional financing costs will be incurred thereby
lowering returns.
Lower levels of current assets result in opposite effects.
Current Asset Investment Policy
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0
2
4
6
8
10
12
14
0 20 40
Current Asset (millions of $)
Sales (millions of dollars)
Conservative - low risk
Aggressive - high risk
Moderate
Alternative Current AssetInvestment Policies
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Temporary vs. Permanent Investmentin Current Assets
Commonly, firms experience short-runfluctuations in current assets. For
example, retail department stores willhave high levels of inventory around
Thanksgiving. In January, the inventoryshould be low.
Firms always have some minimum level ofinvestment in current assets (i.e., a permanent
investment). As a firm grows over time, the levelof permanent current assets also grows (e.g., a
supermarket chain with 70 stores will have morepermanent inventory than a chain with 4 stores).
Temporary Investment
Permanent Investment
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0
2
4
6
8
10
12
14
0 3 6 9 12 15 18 21
Millions of dollars
Time Period
Temporary Fluctuations in
Current Assets
Permanent Current Assets
Temporary and PermanentCurrent Assets
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Accounts Receivable
Working Capital Management
Current Assets and Current
Liabilities
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1. The decision to extend credit to customers has significantcash flow and credit risk implications for the firm.
Firms often dont have a choice, if the availability of
credit is an important factor in the customers
purchase decision process (if competitors offer credit,then the firm must at least match those credit terms,
and then choose to compete on another basis.)
2. The second decision (once the firm has decided to extend
credit) is to determine which customers will be grantedcredit.
3. The credit terms must be established.
4. The collection process must be decided.
Accounts Receivable
Nurul Arafah
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The Credit Decision
Nature Of
TheProduct
Sold
TheIndustry
Practices
OfCompetito
rs
The decision to extend credit is determined:
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The process designed to assess the risk of non-payment bypotential customers, which involves collecting information
about potential customers with respect to their credit history,
their ability to make payments as reflected in their expected
cash flows, and their overall financial stability.
From the firms point of view:
Often willing to extend credit on terms better than a bank
because:
The potential for the firm developing a good customerinto the future, and
Losses are limited to production costs in the case of
default.
Credit Analysis
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Credit Analysis
Variables that are weighed in the credit analysisprocess:
Capacitythe customers abilityto pay
Collateral the securitythat could be seized to
satisfy payment
Conditions the state ofthe economy.
Character thecustomers
willingness to pay
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The firm must choose what terms of credit to offerits customers.
Terms of credit include:
The due date The discount amount (if any)
Options include:
Cash on delivery (COD)
Cash before delivery (CBD)
Net 30, net 40 - no incentive for early payment
2/10 net 30 - a 2% discount for early payment
Credit Policies
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Change in Credit Policy Analysis
When extending more lenient credit
terms the firm hopes to increaserevenues through the sale of more units,
and perhaps even charge higher prices.
These benefits are offset by financingcosts and the increased risk of non-
payment.
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The firm must monitor outstanding A/R by customer and bycategory.
The firm must then determine what action it will take whenlate payments occur.
Charge interest on outstanding balances Notify customer of arrears (email, mail, telephone)
Actions on unpaid amounts:
Allow no further purchases on credit
Choose from a number of additional options to collect:1. Take legal action
2. Sell receivable to a collection agency
3. Write off the debt as uncollectable.
The Collection Process
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FACTORING
It may not be cost-effective for a firm to manage the
collection process itself.
Factoring arrangements are the sale of a firms
receivables, at a discount, to a financial company
called a factor, which specializes in collections, orthe out-sourcing of the collections to a factor.
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INVENTORY
Working Capital Management
Current Assets and Current
Liabilities
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Inventory The level of inventory a firm holds is a trade off between
benefits and costs:
Benefits of Holding Inventory: Take advantage of large-volume discounts
Reduce the probability of production disruptions
because of lack of inventory
Minimize lost sales because of stock-outs
Costs of Holding Inventory:
Financing costs associated with inventory investment
Storage, handling, insurance, spoilage and
obsolescence costs. Nurul Arafah
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Carrying Costs storage and handling costs, insurance, propertytaxes, depreciation, and obsolescence.
Ordering Costs cost of placing orders, shipping, and handlingcosts.
Costs Of Running Short loss of sales or customer goodwill, and
the disruption of production schedules.Reducing the average amount of inventory generally reducescarrying costs, increases ordering costs, and may increase thecosts of running short.
Types Of Inventory Costs
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SHORT-TERM FINANCING
Presented By:Iraj Nikookar
Omid Ashoori
Mehdi Haj Ali Larijani
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Short-term
Financing
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Financing that will be repaid in one year or less.
Short-term financing may be used to meet seasonal and
temporary fluctuations in funds position as well as to meet long-
term needs.
For Example, Providing :
1)Additional Working Capital
2)Finance current assets (such as receivables and inventory)
3)Interim financing for a long-term project until long-term
financing is arranged
What is the Short-Term Financing?
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SPEED:A Short-term loan can be obtained much faster than long-term credit. Lenders will insist
on a more thorough financial examination before extending long-term credit.
Therefore ,if founds are needed in a hurry ,the firm should look to the short-term
market.
FELEXIBILITY:If its needs for funds are seasonal or cyclical , a firm may not want to commit itself to
long-term debt for three main reasons:
1) Flotation costs are higher for long-term debt than for short-term credit
2) Although, long-term debt can be repaid early, provided the loan agreement includes
a prepayment provision, prepayment penalties can be expensive.
3) Long-term loan agreements always contain provisions or covenants, which
constraint the firms future actions.
Why do we ChooseShort-Term Financing?
Iraj Nikookar
Cost of Long Term Vs
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Interest rates are generally lower on short-term debt. Thus, under normalconditions, interest costs at the time the founds are obtained will be
lower if the firm borrows on a short-term rather than long-term basis.
Even though short-term rates are often lower than long-term rates, short-term credit is riskier for
two reasons:
1) If a firm borrows on a long-term basis. Its interest costs will be relatively stable over time,but if it uses short-term credit, its interest expense will fluctuate widely, at times going quite
high.
2) If a firm borrows heavily on a short-term basis, a temporary recession may render it unable
to repay this debt. If the borrower is in a weak financial position, the lender may not extend
the loan, which could force the firm into bankruptcy.
Cost of Long-Term VsShort Term Debt
Risk of Long-Term VsShort-Term Debt
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1. Trade Credit
2. Bank Loans3. Commercial Finance Loans
4. Commercial Paper5. Receivable Financing
Source of Short-Term Financing
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1) Cost
2) Effect on financial ratios
3) Effect on credit rating
4) Risk (reliability of the source of funds for future borrowing)
5) Restrictions
6) Flexibility
7) Expected money market conditions
8) Inflation rate
9) Company profitability and liquidity positions
10) Stability and maturity of operations
11) Tax rate
The different sources merits ofshort-term financing that
should be considered by focusing on:
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Trade credit (accounts payable) are balances owed by your
company to suppliers.
The Advantages:1) Least Expensive Form of Financing Inventory
2) readily available, since suppliers want business
3) no collateral is required
4) there is no interest charge
5) it is likely to be extended if the company gets into
financial trouble
Source of Short-Term FinancingTrade Credit
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The company purchases $500 worth of merchandise per day fromsuppliers. The terms of purchase are net/60, and the company
pays on time. The accounts payable balance is:
$500 per day x 60 days = $ 30,000
The company should typically take advantage of a cash discountoffered for early payment because failing to do so results in a
high opportunity cost. The cost of not taking a discount equals:
360
Trade Credit ( Cont.)
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The company buys $1,000 in merchandise on terms of 2/10,
net/30. The company fails to take the discount and pays the
bill on the thirtieth day. The cost of the discount is:
The company would be better off taking the discount even if it
needed to borrow the money from the bank, since theopportunity cost is 36.7 percent. The interest rate on a bank
loan would be far less.
$20$980
x 36020
= 36.7%
Trade Credit ( Cont.)
Omid Ashoori
Source of Short Term Financing
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Bank financing may take the following forms:
1) Unsecured loans 5) Secured loans
2) Lines of credit 6) Letters of credit
3) Revolving credit
4) Installment loans
Bank Loans are an important source of short-term credit. When a bank
loan is approved a promissory note is signed. It Specifies:
1) The Amount borrowed.
2) The Percentage interest rate
3) The repayment schedule4) The collateral
5) Any other conditions to which the parties have agreed
Source of Short-Term FinancingBank Loan
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Unsecured Loans: Most short-term unsecured (uncollateralized) loansare self-liquidating. This kind of loan is recommended if the company has an
excellent credit rating. It is usually used to finance projects having quick cash flows
and is appropriate if the company has immediate cash and can either repay the loan
in the near future or quickly obtain longer-term financing.
Secured Loans: If the company's credit rating is deficient, the bank maylend money only on a secured basis. Collateral can take many forms, including
inventory, marketable securities, or fixed assets. Even if the company is able to
obtain an unsecured loan, it may be better off taking a collateralized loan at a lower
interest rate.
Lines of Credit. Under a line of credit, the bank agrees to lend money up toa specified amount on a recurring basis. The bank typically charges a commitment
fee on the amount of the unused credit line. Credit lines are typically established for
a one-year period and may be renewed annually.
Bank Loans (CONT.)
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The company borrows $200,000 and is required to keep a 12percent compensating balance. It also has an unused line of
credit of $100,000, for which a 10 percent compensating
balance is required. The minimum balance that must be
maintained is:
A line of credit is typically decided upon prior to the actual
borrowing. In the days between the arrangement for the loanand the actual borrowing, interest rates may change. Therefore,
the agreement will stipulate the loan is at the prime interest
rate prevailing when the loan is extended plus a risk premium.
000,34$000,10$000,24$)1.0000,100($)12.000,200($
Bank Loans (CONT.)
Omid Ashoori
k ( )
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Letter Of Creditis a document issued by a bank guaranteeing the payment of a
customer's drafts up to a specified amount for a designated time period. In effect, thebank's credit is substituted for that of the buyer, minimizing the seller's risk.
Payment may be made on submission of proof of shipment or other performance.
Letters of credit are used primarily in international trade.
There are different types of letters of credit:
1) Commercial letter of credit
2) confirmed letter of credit
Revolving Credit. A revolving credit is an agreement between the bank and the
borrower in which the bank contracts to make loans up to a specified ceiling withina prescribed time period. With revolving credit, notes are short term (typically ninety
days). When part of the loan is paid, an amount equal to the repayment may again be
borrowed under the terms of the agreement. Advantages are the readily available
credit and few restrictions compared to line-of-credit agreements. A major
disadvantage may be restrictions imposed by the bank.
Bank Loans (CONT.)
Mehdi Haj ali Larijani
B k ( )
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Installment Loans: An installment loan requires monthlypayments of interest and principal. When the principal on the
loan decreases sufficiently, you may be able to refinance at a
lower interest rate. The advantage of this kind of loan is that it
may be tailored to satisfy seasonal financing needs.
Interest:
Interest on a loan may be paid either at maturity (ordinary
interest) or in advance (discounting the loan). When interest is
paid in advance, the loan proceeds are reduced and theeffective (true) interest rate is increased.
Bank Loans (CONT.)
Mehdi Haj ali Larijani
Bank Loans Interest
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Example 1:
The company borrows $30,000 at 16 percent interest per annum and repays the
loan one year later. The interest is $30,000 .16 = $4,800. The effective
interest rate is 16 percent ($4,800/$30,000).
Example 2:
Assume the same facts as in the prior example, except the note is discounted. The
effective interest rate increases as follows:
Proceeds = principle Interest = $30.000 -$4.800 = $25.200
Effective Interest rate = Interest / Proceeds =$4.800 / $25.200 = 19%
A compensating balance will increase the effective interest rate.
Bank Loans-Interest(Example)
Mehdi Haj ali Larijani
Bank Loans Interest
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The effective interest rate for a one-year, $600,000 loan that has a nominal
interest rate of 19 percent with interest due at maturity and requiring a 15
percent compensating balance is:
,%=
0.19 $600,000
10.15 $600,000
=22.4%
Assume the same facts as in the prior example, except that the loan is
discounted. The effective interest rate is: Effective interest rate (with
discount) equals:
,% =
0.19 $600,000
0.85$600,000114,000
=28.8 %
Bank Loans-Interest(Example Cont.)
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Commercial Papers
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A company's balance sheet appears below.
ASSETS Current assets $ 540,000
Fixed assets $800,000
Total assets $1,340,000
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Notes payable to banks $ 100,000
Commercial paper $650,000 Total current liabilities $ 750,000
Long-term liabilities $260,000
Total liabilities $1,010,000
Stockholders' equity $330,000
Total liabilities and stockholders' equity $1,340,000
The amount of commercial paper issued by the company is a high percentageof both its current liabilities, 86.7% ($650,000/$750,000), and its totalliabilities, 64.4% ($650,000/$1,010,000). Because bank loans are minimal,the company may want to do more bank borrowing and less commercialpaper financing. In the event of a money market squeeze, the company mayfind it advantageous to have a working relationship with a bank.
Commercial Papers(Example)
Mehdi Haj ali Larijani
Source of Short-Term
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In accounts receivable financing, the accounts receivable serve as securityfor the loan as well as the source of repayment. Financing backed by
accounts receivable generally takes place when:
Receivables are at least $25,000.
Sales are at least $250,000.
Individual receivables are at least $100.
Receivables apply to selling merchandise rather than rendering services.
Customers are financially strong.
Sales returns are low.
The buyer receives title to the goods at shipment.
Receivable financing has several advantages. It eliminates the need to
issue bonds or stock to obtain a recurring cash flow. Its drawback is the
high administrative costs of monitoring many small accounts.
Source of Short-TermReceivable for Financing
Mehdi Haj ali Larijani
Receivable for Financing (CONT )
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Accounts receivable may be financed under:
1) Factoring agreement
2) Assignment (pledging) arrangementFactoring is the outright sale of accounts receivable to a bank or finance
company without recourse; the purchaser takes all credit and collectionrisks. The proceeds received by the seller are equal to the face value of thereceivables less the commission charge, which is usually 2 to 4 percent
higher than the prime interest rate.Factoring Pros and Cons:
Advantages include:
1. Offering immediate Cash
2. Reducing Overhead
3. Providing Financial Advice4. Strengthening the companys balance sheet position
Disadvantages include:
1. High cost
2. Negative impression left with customers
Receivable for Financing (CONT.)
Mehdi Haj ali Larijani
R i bl f Fi i (CONT )
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Assignment ownership of the accounts receivable is not transferred. Instead,
receivables are given to a finance company with recourse. The financecompany usually advances between 50 and 85 percent of the face value of thereceivables in cash; your company is responsible for a service charge, intereston the advance, and any resulting bad debt losses, and continues to receivecustomer remissions.
Assignment Pros and Cons :
Advantages Include:
1. Providing immediate cash
2. Making cash on a seasonal basis
3. Avoiding negative customer feelingDisadvantages include:
1. High cost
2. Continuing of administrative costs
3. Bearing of credit risk
Receivable for Financing (CONT.)
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CASH CONVERSION CYCLE
Present By :
SUHAILI BT SAADONATHIRA BT ABDULLAH
CASH CONVERSION
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The cash conversion cycle is a measure of working capital
efficiency, often giving valuable clues about the underlying
health of a business.
The cycle measures the average number of days that working
capital is invested in the operating cycle.
It starts by adding days inventory outstanding (DIO) to days
sales outstanding (DSO).
CASH CONVERSIONCYCLE
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This is because a company "invests" its cash to
acquire/build inventory, but does not collect cash until
the inventory is sold and the accounts receivable are
finally collected.
However, days payable outstanding (DPO), which
essentially represent loans from vendors to the company,
are subtracted to help offset working capital needs.
CCC = DIO + DSO - DPO
Suhaili saadon
EXAMPLE
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EXAMPLE
CASH CONVERSION CYCLE MODEL
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CASH CONVERSION CYCLE MODEL The model measures the length of time it takes for cash invested in
the firms current assets to be returned.
THE PROCESS
The firm starts with some cash & receive information on demand for its product
Based on this forecast the firms order materials to produce inventories of
finished goods (a current assets)
When the firm orders materials, it creates an account payable (a current liability)
After sale, an account receivable (pay directly or promise pay
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EXAMPLE
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EXAMPLE
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FACTOR INFLUENCE
CASH CONVERSION
CYCLE
INFLATION
Increase in the price of
factors of production.
GROWTH-Increasing investment in working capital.
-Not balanced by increasing sale revenue until extra sales worked their way rightthrough the cycle.
-Overtrading may occur as increased in current asset not supported by new funds.
-Extreme consequence will to sell fixed asset to repay liabilities.
INDUSTRY
INFLUENCEThe production process &
nature of industry must
considered on examining
working capital
requirement.
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EXAMPLE
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EXAMPLE
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CASH CONVERSION CYCLE
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CASH
RAW MATERIALSDEBTOR
FINISHED GOODS WORK IN PROGRESS
CREDITORS
Cycle can be reduced by either
1) Improving production efficiency
2) Improving finished goods
3) Improving debtor (minimising) & creditors period (maximising)
Purchase
Production
Collection
Sales
CASH CONVERSION CYCLE
Suhaili saadon
EXAMPLE
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65/75
EXAMPLE
Suhaili saadon
Marketable SecuritiesC b ld h t ti
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C
A
SH
CO
N
V
E
RS
I
O
N
C
Y
C
L
E
Can be sold short notice
The goal of holding similar to
holding cash
Serve a substitute for cash &
temporary investment for
funds
Inventories1) Raw Materials
2) Work-in
Process3) Finished
Goods
Account Receivables-Balance due from
customers
-Firms use aging schedule
& the day sales
outstanding
(DSO)
Inventory ManagementDetermining how many inventories to hold
when to place orders & how many units to
order.
Inventory Cost1) Carrying cost
-increase as the level of inventories rises.
2) Ordering costs
-decline with larger inventory holding.
3) Stock-out costs
-decline with larger inventory holding.
Inventory Control System1) Red-line method
- computerised inventory control system
to help keep track of actual inventory
levels.2) Two-bin method
- to ensure that inventory levels are
adjusted as sales change.
3) Just-in time (JIT) system
- to hold down inventory costs &
simultaneously.
- to improve the production process.
Suhaili saadon
EXAMPLE
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8/3/2019 4. Working Capital Management
67/75
EXAMPLE
Suhaili saadon
CASH CONVERSION CYCLE
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68/75
ATHIRA
CASH CONVERSION CYCLE
CASH CONVERSION CYCLE
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CASH CONVERSION CYCLEDERIVATION
Cash conversion cycle is the length of time between
the payment of creditors (accounts payable) and the
receipt of cash from debtors (accounts receivable)
CCC = DIO + DSO DPO
ATHIRA
i Days Inventory Outstanding (DIO):
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i. Days Inventory Outstanding (DIO):
Average of days takes to sell the entireinventory. The smaller number the better.
Inventory RM 2,100,000
Cost of Goods Sold (COGS) for a year RM17,500,000
DIO = RM 2,100,000 x 365 = 43.8 daysRM17,500,000
DIO = Average inventory/ COGS per day
Average Inventory = (beginning inventory +ending inventory) /n
ATHIRA
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ii. Days Sales Outstanding (DSO):
The number of days needed to collect on sales and
involves average Account Receivable (AR). Smalleris better.
Debtors RM 2,550,000
Sales RM 30,000,000
DSO = RM 2,550,000 x 365 = 31.03 days
RM 30,000,000
DIO = Average inventory/ Revenue per day
Average Inventory = (beginning inventory +ending inventory) /n
ATHIRA
Days Payable Outstanding (DPO):
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y y gInvolves the companys payment of its own bills or AP. If this can bemaximized, the company holds onto cash longer, maximizing itsinvestment potential, a longer DPO is better.
Account Payable RM 800,000
COSG for a year RM17,500,000 DPO = RM 800,000 x 365 = 16.69 days
RM17,500,000
Hence, the cash conversion cycle is:
CCC = DIO + DSO DPOCCC = 43.80 + 31.03 16.69
= 58.14 days
DPO = Average AP/ COGS per day
Average AP = (beginning AP +ending AP) /2
ATHIRA
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73/75
ATHIRA
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8/3/2019 4. Working Capital Management
74/75
ATHIRA
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75/75
THANK YOU
ANY QUESTION ?