Tài chính doanh nghiệp - Chapter 16: Short term finacial planning

16-1Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin16-2Key Concepts and SkillsUnderstand:The operating and cash cycles and understand why they are importantThe different types of short-term financial policyThe essentials of short-term financial planning16-3Chapter Outline16.1 Tracing Cash and Net Working Capital16.2 The Operating Cycle and the Cash Cycle16.3 Some Aspects of Short-Term Financial Policy16.4 The Cash Budget16.5 Short-Term Borrowing16.6 A Short-Term Financial Plan16-4NWC Review(16.1) NWC + Fixed assets = L/T Debt + Equity(16.2) NWC = (Cash + Other current assets) – Current Liabilities(16.3) Cash = L/T Debt + Equity + Current Liabilities – Current Assets other than cash – Fixed assets16-5Sources and Uses of CashSources of CashIncrease long-term debtIncrease equityIncrease current liabilitiesDecrease current assetsDecrease fixed assetsUses of CashDecrease long-term debtDecrease equityDecrease current liabilitiesIncrease current assetsIncrease fixed assets16-6The Operating CycleTime required to receive inventory, sell it, and collect on the receivables generated from the sale of the inventoryOperating cycle = inventory period + accounts receivable periodInventory period = time inventory sits on the shelfAccounts receivable period = time it takes to collect on receivables16-7Operating Cycle EquationsOperating cycle = Inventory period + Accounts receivable periodInventory period = 365/Inventory turnoverInventory turnover = COGS1/Average InventoryAccounts receivable period = 365/Receivables turnover= Average Collection PeriodAccounts receivable turnover = Credit sales/Average accounts receivable1COGS = Cost of Goods Sold16-8The Cash CycleThe time between payment for inventory and receipt from the sale of inventoryCash cycle = operating cycle – accounts payable periodAccounts payable period = time between receipt of inventory and payment for itThe cash cycle measures how long we need to finance inventory and receivables16-9Cash Cycle EquationsCash cycle = Operating Cycle – Accounts payable periodAccounts payable period = 365/Payables turnoverPayables turnover = COGS1/Average account payable1COGS = Cost of Goods Sold16-10The Operating & Cash Cycles16-11Corporate Management & S/T Financial PlanningTable 16.116-12Example DataOperating Cycle = Inventory Period + Accounts Receivables PeriodInventory Period = 365/Inventory TurnoverAccounts Receivables Period = 365/Receivables Turnover = Average Collection PeriodCash Cycle = Operating Cycle – Accounts Payable PeriodAccounts Payable Period = 365/Payables Turnover16-13Example: Operating CycleInventory periodAverage inventory = (200,000+300,000)/2 = 250,000Inventory turnover = 820,000 / 250,000 = 3.28 xInventory period = 365 / 3.28 = 111 daysReceivables periodAverage receivables = (160,000+200,000)/2 = 180,000Receivables turnover = 1,150,000 / 180,000 = 6.39 xReceivables period = 365 / 6.39 = 57 daysOperating cycle = 111 + 57 = 168 days16-14Example: Cash CycleAccounts Payable Period = 365 / payables turnoverPayables turnover = COGS / Average APPT = 820,000 / 87,500 = 9.4 xAccounts payables period = 365 / 9.4 = 39 daysCash cycle = 168 – 39 = 129 daysInventory and receivables must be financed for 129 days16-15Short-Term Financial PolicyFlexible PolicyLarge amounts of cash and marketable securitiesLarge amounts of inventoryLiberal credit policies (large accounts receivable)Relatively low levels of short-term liabilities High liquidityRestrictive PolicyLow cash and marketable security balancesLow inventory levelsLittle or no credit sales (low accounts receivable)Relatively high levels of short-term liabilities Low liquidityReturn to Quick Quiz16-16Flexible Financial PolicyAdvantagesNo difficulty meeting short-term obligationsCash available for emergenciesLower storage costsDisadvantagesLiquid securities = lower returnFinancing S/T assets with L/T debt risky16-17Restrictive Financial PolicyAdvantagesHigher returns on long term assetsLower carrying costsS/T liabilities can be decreased more easily in case of economic downturnDisadvantagesLess liquidity for emergenciesHigher storage costs16-18Carrying versus Shortage CostsCarrying costsOpportunity cost of owning current assets versus long-term assets that pay higher returnsCost of storing larger amounts of inventoryShortage costsOrder costs – the cost of ordering additional inventory or transferring cashStock-out costs – the cost of lost sales due to lack of inventory, including lost customers16-19Temporary vs. Permanent AssetsPermanent current assetsThe level of current assets the company retains regardless of any seasonality in salesTemporary current assetsAdditional current assets added when sales are expected to increase on a seasonal basis16-20Alternative Asset Financing Policies Figure 16.4FlexibleRestrictive16-21Choosing the Best PolicyConsider:Cash reservesMaturity hedgingRelative interest ratesCompromise policy = borrow short-term to meet peak needs, and maintain a cash reserve for emergenciesReturn to Quick Quiz16-22A Compromise Financing PolicyFigure 16.516-23Cash BudgetPrimary tool in short-run financial planningIdentify short-term needs and opportunitiesIdentify when short-term financing may be requiredHow it worksIdentify sales and cash collectionsIdentify various cash outflowsSubtract outflows from inflows and determine investing and financing needsReturn to Quick Quiz16-24Cash Budget ExampleFun ToysExpected sales by quarter (millions)Q1: $200; Q2: $300; Q3: $250; Q4: $400Beginning accounts receivable = $120Collections = Beginning receivables + ½ x SalesAccounts payable = 60% of salesWages, taxes, and other expenses = 20% of salesInterest and dividends = $20 million per quarterMajor expansion planned for quarter 2 costing $100 millionBeginning cash balance = $20 million with minimum cash balance of $10 million16-25Fun Toys Cash Collections & Cash Disbursements16-26Fun ToysNet Cash Flow and Cash BalanceComments on Fun Toys Cash Budget:Beginning in Q2, Fun Toys will have a cash deficit which must be coveredSales are forecasts and could be much better or worse16-27Short-Term BorrowingUnsecured LoansLine of credit Prearranged agreement with a bank that allows the firm to borrow up to a certain amount on a short-term basisMay require a “Cleanup period”Committed Formal legal arrangement that may require a commitment fee and generally has a floating interest rate16-28Short-Term BorrowingUnsecured LoansNon-committed Informal agreement with a bank that is similar to credit card debt for individualsRevolving credit Non-committed agreement with a longer time between evaluations16-29Short-Term BorrowingSecured LoansAccounts Receivable FinancingAssigning receivablesLender has A/R as security but borrower still responsible for collectionFactoring receivablesA/R discounted and sold to a factorCollection = factor’s problem16-30Short-Term BorrowingSecured LoansInventory LoansBlanket inventory lienLender has lien against all inventoriesTrust receiptBorrower holds specific inventory in “trust” for the lenderAuto dealer “floor plans”Field warehouse financingPublic warehouse acts as control agent to supervise inventory for lender16-31Fun ToysShort-Term Financial PlanDeficit covered with S/T borrowing at 20% APR calculated quarterly16-32Quick Quiz - 1What are the differences between flexible and restrictive short-term financial policies? (Slide 16.15)What factors do we need to consider when choosing a financial policy? (Slide 16.21)What factors go into determining a cash budget and why is it valuable? (Slide 16.23)16-33Quick Quiz - 2Suppose your average inventory is $10,000, your average receivables balance is $9,000, and your average payables balance is $4,000. Net sales are $100,000 and cost of goods sold is $50,000. What are the operating cycle and cash cycle?16-34Quick Quiz – Problem 4 SolutionInventory turnover = 50,000 / 10,000 = 5 xInventory period = 365 / 5 = 73 daysReceivables turnover = 100,000 / 9,000 = 11.11xAverage collection period = 365 / 11.11 = 33 daysPayables turnover = 50,000 / 4,000 = 12.5 xPayables period = 365 / 12.5 = 29 daysOperating Cycle = 73 + 33 = 106 daysCash Cycle = 106 days – 29 days = 77 daysChapter 16END