Download - Power Point - Finman
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By: Sharon Tenozo-Lucob
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`Key Terms:
1. Self- Liquidating Assets
2. Temporary Current Assets
3. Permanent Current Assets
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` It is the equal monthly production
used to smooth out production
schedules and employ manpowerand equipment more efficiently
and at a lower cost.
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` Example:
Yawakuzi Motorcycle Company manufactures andsells motorcycles in the snowy U.S. Midwest. Notto many people will be buying motorcycles duringOctober through March, but sales will pick up in
early spring and summer and will again trail offduring fall. Because of the fixed assets and theskilled labor involved in the production process,Yawakuzi decides that level of production is theleast expensive and the most efficient productionmethod.
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1st
quarter
2nd
quarter
3rd
quarter
4th
quarter
October 300 January 0 April 1,000 July 2,000
November 150 February 0 May 2,000 August 1,000
December 50 March 600 June 2,000 September 500
Total Sales of 9,600 units at P3,000 each = 28,000,000 in sales
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Beginning
Inventory
(+)
Production(level
production)
(-)
Sales
(=)
EndingInventory
Inventory
(at cost ofP2,000 per
unit)
October 800 800 300 1,300 P2.6M
November 1,300 800 150 1,950 3.9M
December 1,950 800 50 2,700 5.4M
January 2,700 800 0 3,500 7.0M
February 3,500 800 0 4,300 8.6M
March 4,300 800 600 4,500 9.0M
April 4,500 800 1000 4,300 8.6M
May 4,300 800 2000 3,100 6.2M
June 3,100 800 2000 1,900 3.8M
July 1,900 800 2000 700 1.4M
August 700 800 1000 500 1.0M
September 500 800 500 800 1.6M
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Table 3
Sales Forecast, cash receipts and payments, and cash budget
October November December January February March April May June July August September
Sales Forecast (in millions):
Sales (units) 300 150 50 0 0 600 1,000 2,000 2,000 2,000 1,000 500
Sales (unit price, P3,000) 0.90 0.45 0.15 0.00 0.00 1.80 3.00 6.00 6.00 6.00 3.00 1.50
Cash Receipts Schedule (in millions)
50% Cash 0.45 0.225 0.075 0 0 0.90 1.50 3.00 3.00 3.00 1.50 0.75
50% from prior month's sale 0.75 0.45 0.225 0.075 0 0 0.90 1.50 3.00 3.00 3.00 1.50
Total Cah Receipts 1.20 0.675 0.300 0.075 0 0.90 2.40 4.50 6.00 6.00 4.50 2.25
*Assumes September sales of P1.5 million
Cash Payments Schedule (millions)
Constant Production of 800 units/
month (cost P2,000/unit) 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
Overhead 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Dividends and Interest - - - - - - - - - - 1.0 -
Taxes 0.3 0.3 0.3 0.3
Total cash payments 2.3 2.0 2.0 2.3 2.0 2.0 2.3 2.0 2.0 2.3 3.0 2.0
Cash Budget (millions, required minimum balance is 0.25 million)
Cash flow -1.10 -1.325 -1.70 -2.225 -2.00 -1.10 0.10 2.50 4.00 3.70 1.50 0.25
Beginning cash 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 1.1 2.6
Cumulative cash balance -0.85 -1.075 -1.45 -1.975 -1.75 -0.85 0.35 2.75 4.25 3.95 2.60 2.85
Monthly loan or (repayment) 1.10 1.325 1.70 2.225 2.00 1.1 -0.10 -2.5 -4.00 -2.85 0 0
Cumulative loan 1.10 2.425 4.125 6.350 8.35 9.45 9.35 6.85 2.85 0 0 0
Ending cash balance 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 1.10 2.60 2.85
**Assumes cash balance of P0.25 million at the beginning of October and that t his is the desired minimum cash balance.
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Cash AccountsReceivable
Inventory Total CurrentAssets
October 0.25 0.450 2.6 3.30
November 0.25 0.225 3.9 4.375
December 0.25 0.075 5.4 5.725
January 0.25 0 7.0 7.25
February 0.25 0 8.6 8.85
March 0.25 0.90 9.0 10.15
April 0.25 1.50 8.6 10.35
May 0.25 3.00 6.2 9.45
June 0.25 3.00 3.8 7.05
July 1.10 3.00 1.4 5.5
August 2.60 1.50 1.0 5.10
September 2.85 0.75 1.6 5.20
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Table 5
Cash Budget and assets for the second year with no growwth in sales (P millions)
End of
Second Year1st year
September October November December January February March April May June July August September
Cash Flow 0.25 -1.1 -1.325 -1.7 -2.225 -2 -1.1 0.1 2.5 4 3.7 1.5 0.25
Beginning Cash 2.6 2.85 1.75 0.425 0.25 0.25 0.25 0.25 0.25 0.25 0.25 3.7 5.2
Cumulative Cash Balance 1.75 0.425 -1.275 -1.975 -1.75 -0.85 0.35 2.75 4.25 3.95 5.2 5.45
Monthly Loan (or repayment) - - 1.525 2.225 2 1.1 -0.1 -2.5 -4 -0.25 - -
Cumulative Loan - - 1.525 3.75 5.75 6.85 6.75 4.25 0.25 0 - -
Ending Cash Balance 2.85 1.75 0.425 0.25 0.25 0.25 0.25 0.25 0.25 0.25 3.7 5.2 5.45
Total Current Assets
Ending Cash Balance 2.85 1.75 0.425 0.25 0.25 0.25 0.25 0.25 0.25 0.25 3.7 5.2 5.45
Accounts
eceivable 0.75 0.45 0.225 0.075 0 0 0.95 1.5 3 3 3 1.5 0.75
Inventory 1.6 2.6 3.9 5.4 7 8.6 9 8.6 6.2 3.8 1.4 1 1.6
Total Current Assets 5.2 4.8 4.55 5.725 7.25 8.85 10.2 10.35 9.45 7.05 8.1 7.7 7.8
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Figure 1
The Nature of Asset Growth (Yawakuzi)
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`1. for transaction balances
`2. for compensating balances
`3. for precautionary needs
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Sales
AccountsReceivable
Cash
Inventory
Customers
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Salesgeographical area
product or division
customer type
Accounts Receivable
0-30 days
31-60 days
61-90 days
91-120 days
CashInventory
finished goods
goods in process
raw materials
MarketableSecurities
Interest andDIvidends
Short-term LendersCommercial Banks
Nonbank lendersForeign banks and
lenders
Government TaxesIncome TaxesLocal TaxesOther Taxes
Materials and ServiceSuppliers: accounts
payableLabor: wages payable
OtherExpenses
CustomersFigure No. 6
Expanded Cash Flow
Cycle
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`1. Float
`2. Lockbox System
`3. Cost-Benefit Analysis`4. Electronic Fund Transfer
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` Involves the selection of variousshort-term investments.
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` 1. Yield` 2. Maturity
` 3. Minimum Investment Required
` 4. Safety` 5. Marketability
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`Accounts Receivable and InventoryManagement require credit and inventory level
decisions made with an eye toward profitability.
`As is true of other current assets, accounts
receivable should not be judged too high or toolow based on historical standards of industry
norms, but rather the test should be whether the
level of return we are able to earn from this
asset equals or exceeds the potential gain fromother investments.
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`1. Credit Standards`2. Terms of Trade
`3. Collection Policy
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` All forms of inventory are needed to be financed andtheir efficient management can increase a firms
profitability. However, the amount of inventories is not
always totally controlled by company management
because it is affected by sales, production and economic
conditions. Inventory is the least liquid of current assets,therefore, it should provide the highest yield to justify the
investment. While financial managers may have direct
control over the management of other current assets,
control over inventory policy is generally shared withproduction management and marketing.
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`1. Level Production versus
Seasonal Production
`2. Inventory Policy in Inflation
and Deflation
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`
1.E
conomic Ordering Quantity(EOQ)
`2. Just-in-Time Inventory (JIT)
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` 1. Bank Overdraft
` 2. Credit Card
` 3.Trade Credit
` 4. Lease
` 5. Bank Loans
` 6. Commercial Paper
` 7. Foreign Borrowing
` 8. Accounts Receivable Financing
` 9. Inventory Financing
` 10. Hedging
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