revenue growth and cash management. what is the cash gap? collection period payables period...
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![Page 1: Revenue Growth and Cash Management. What is the Cash Gap? Collection Period Payables Period Inventory Days](https://reader035.vdocument.in/reader035/viewer/2022062309/5697bff71a28abf838cbea7d/html5/thumbnails/1.jpg)
Revenue Growthand
Cash Management
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What is the Cash Gap?
• Collection Period
• Payables Period
• Inventory Days
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Cash Gap Computation
• Days in inventory + collection period - days in payables
• Inventory management improves cash gap
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Cash Gap CalculationsDollar General Wal Mart Int'l Paper WeyerhaeyserThousands Millions Millions Millions
Sales 2,627,325$ 117,958$ 19,541$ 10,766$ Receivables - 976 2,469 978 Cost of sales 1,885,190 93,438 14,761 8,484 Inventory 631,954 16,497 2,719 962 Payables 179,958 9,126 1,525 699
Analyses
Days in receivables - 3 46 33 Days in inventory 122 64 67 41 Days in payables 35 36 38 30
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Dollar General Wal Mart Int'l Paper Weyerhaeyser
Average daily amount financed 5,165$ 256$ 40$ 23$ Average daily cost of cash gap 362 18 3 2 Interest rate 7% 7% 7% 7%
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Comparison to Competitors
122 days
Days in Inventory
35 days Cash Gap: 88 days
Payable days
Days in Inventory
36 days
Payable days
DollarGeneral
64 days
Cash Gap: 32 days
Collection Period: 3 days
Wal Mart
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Sales Growth and Cash Gap
• Short gap allows high growth
• Long gap causes company to grow out of cash
• Margin and cash gap
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0
1,000
2,000
3,000
4,000
5,000
6,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collections and ExpenseThirty Day Cash Gap
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0
1,000
2,000
3,000
4,000
5,000
6,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap
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0
1,000
2,000
3,000
4,000
5,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collections and ExpenseNinety Day Cash Gap
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0
1,000
2,000
3,000
4,000
5,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and Expense120 Day Cash Gap
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(2,000)
(1,500)
(1,000)
(500)
0
500
1,000
Net C
ash
Flo
ws (T
ho
usan
ds)
0% 10% 20% 30% 40% 50%Monthly Sales Growth Rate
Cash Flows and Sales Growth30 Day Payment and 75 Day Collection
50%
40%
30%
20%
10%
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--10% Growth
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--11% Growth
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--12% Growth
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--13% Growth
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--14% Growth
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Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
Cash Gap
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Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
New Cash Gap
Cash Shortage
Old Cash Gap
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Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
Old Cash Gap New Cash Gap
Cash Surplus
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Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
Slower Sales Growth
Cash Gap
Cash Surplus
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Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
Lower Margin
Cash Gap
Cash Shortage
Former Revenue
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Cash Gap and Fluctuating Sales
• Sales Variation
• Size of Cash Gap
• Cash Flow Variability
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(30,000)
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
50,000
Dollar A
mount
0 10 20 30 40 50 Month
Fluctuating Sales and Expenses
Revenue
Expense
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(30,000)
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
50,000
Dollar A
mount
0 10 20 30 40 50 Month
Fluctuating Sales and Expenses
Revenue
Expense
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(30,000)(20,000)(10,000)
0 10,000 20,000 30,000 40,000 50,000
Dollar A
mount
0 10 20 30 40 50 Month
Net Cash FlowCash Gaps from 30 to 120 Days