Tài chính doanh nghiệp - Chapter 17: Working capital management

17-1Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin17-2Key Concepts and SkillsUnderstand How firms manage cash and various collection, concentration, and disbursement techniquesHow to manage receivables, and the basic components of credit policyVarious inventory types, different inventory management systems, and what determines the optimal inventory level17-3Chapter Outline17.1 Float and Cash Management17.2 Cash Management: Collection, Disbursement, and Investment17.3 Credit and Receivables17.4 Inventory Management17.5 Inventory Management Techniques17-4Reasons for Holding CashJohn Maynard KeynesSpeculative motive = take advantage of unexpected opportunitiesPrecautionary motive = in case of emergenciesTransaction motive = to pay day-to-day billsTrade-off: opportunity cost of holding cash vs. transaction cost of converting marketable securities to cash 17-5Understanding FloatFloat = difference between cash balance recorded in the cash account and the cash balance recorded at the bankDisbursement floatGenerated when a firm writes checksAvailable balance at bank – book balance > 0Collection floatChecks received increase book balance before the bank credits the accountAvailable balance at bank – book balance < 0Net float = disbursement float + collection floatReturn to Quick Quiz17-6Managing FloatManagement concern = net float and available balanceCollections and disbursement timesMailing timeProcessing delayAvailability delayTo speed collections, decrease one or moreTo slow disbursements, increase one or more17-7Float Issues“Kiting”Systematic overdrafting Writing checks for no economic reason other than to exploit floatElectronic Data Interchange & Check 21EDI = direct, electronic information exchangeCheck 21 = bank receiving a customer check may transmit an electronic image and receive immediate payment17-8Example: Types of FloatYou have $3,000 in your checking account. You just deposited $2,000 and wrote a check for $2,500.What is the disbursement float?What is the collection float?What is the net float?What is your book balance?What is your available balance?17-9Cash CollectionPayment Payment Payment CashMailed Received Deposited AvailableMailing TimeProcessing DelayAvailability DelayCollection DelayFloat management goal = reduce collection delay17-10Cash Collection“Over-the-counter-collection”Point of sale collectionPreauthorized payment systemPayment amount and dates fixed in advancePayments automatically transferredPayments via mailed checksOne mailing addressVarious collection points17-11Lockboxes & Cash ConcentrationCustomer checks mailed to a P.O boxLocal bank picks up checks several times each dayLockbox maintained by local bankChecks deposited to firm’s accountFirms may have many lockbox arrangements around the countryFunds end up in multiple accountsCash concentration = procedure to gather funds into firm’s main accountsReduces mailing and processing times17-12Overview of Lockbox ProcessingFigure 17.117-13Lockboxes and Cash Concentration17-14Cash DisbursementsDisbursement float = desirableSlowing down payments can increase disbursement float Mail checks from distant bank or post officeMay not be ethical or optimalControlling disbursementsZero-balance accountControlled disbursement account17-15Zero-balance AccountsFirm maintainsA master bank accountSeveral subaccountsBank automatically transfers funds from main account to subaccount as checks presented for paymentRequires safety stock buffer in main account only17-16Zero-balance AccountsFigure 17.317-17Investing Idle CashMoney market = financial instruments with original maturity ≤ one year Temporary Cash SurplusesSeasonal or cyclical activitiesBuy marketable securities with seasonal surplusesConvert back to cash when deficits occurPlanned or possible expendituresAccumulate marketable securities in anticipation of upcoming expenses17-18Seasonal Cash DemandsFigure 17.417-19Characteristics of Short-Term SecuritiesMaturity – firms often limit the maturity of short-term investments to 90 days to avoid loss of principal due to changing interest ratesDefault risk – avoid investing in marketable securities with significant default riskMarketability – ease of converting to cashTaxability – consider different tax characteristics when making a decision17-20Credit Management: Key IssuesGranting credit increases salesCosts of granting creditChance that customers won’t payFinancing receivablesCredit management = trade-off between increased sales and the costs of granting credit17-21Cash Flows from Granting CreditCredit Sale Check Mailed Check Deposited Cash Available Cash Collection Accounts Receivable17-22Components of Credit PolicyTerms of sale Credit period (usually 30-120 days)Cash discount and discount periodType of credit instrumentCredit analysis Distinguishing between “good” customers that will pay and “bad” customers that will defaultCollection policy Effort expended on collecting receivables17-23Credit Period DeterminantsFactorEffect on Credit Period1. Perishable goods with low collateral valuecredit period2. Low consumer demandcredit period3. Low cost, low profitability, and high standardizationcredit period4. High credit riskcredit period5. Small account sizecredit period6. Competitioncredit period7. Customer typeVaried17-24Terms of SaleBasic Form: 2/10 net 452% discount if paid in 10 daysTotal amount due in 45 days if discount is not takenBuy $500 worth of merchandise with the credit terms given abovePay $500(1 - .02) = $490 if you pay in 10 daysPay $500 if you pay in 45 days17-25Example: Cash DiscountsFinding the implied interest rate when customers do not take the discountCredit terms of 2/10 net 45 and $500 loan$10 interest (= .02*500)Period rate = 10 / 490 = 2.0408%Period = (45 – 10) = 35 days365 / 35 = 10.4286 periods per yearEAR = (1.020408)10.4286 – 1 = 23.45%The company benefits when customers choose to forgo discounts17-26Credit InstrumentsBasic evidence of indebtednessOpen accountMost basic formInvoice onlyPromissory NoteBasic IOUNot commonSigned after goods delivered17-27Credit InstrumentsCommercial DraftSight draft = immediate payment requiredTime draft = not immediateWhen draft presented, buyer “accepts” itIndicates promise to pay“Trade acceptance”Seller may keep or sell acceptanceBanker’s acceptance = bank guarantees payment17-28Optimal Credit PolicyCarrying costsRequired return on receivablesLosses from bad debtsCost of managing credit & collectionsIf restrictive credit policy:Carrying costs lowCredit shortage = opportunity costsMore liberal credit policy likely if:Excess capacityLow variable operating costsRepeat customers17-29Optimal Credit PolicyFigure 17.5Amount of credit extended ($)Cost ($)Carrying CostOpportunity costsOptimal amount of credit17-30Credit AnalysisProcess of deciding which customers receive creditCredit informationFinancial statementsCredit reports/past payment historyBanksPayment history with the firmDetermining creditworthiness5 Cs of CreditCredit ScoringReturn to Quick Quiz17-31Five Cs of CreditCharacter = willingness to meet financial obligationsCapacity = ability to meet financial obligations out of operating cash flowsCapital = financial reservesCollateral = assets pledged as securityConditions = general economic conditions related to customer’s business17-32Collection PolicyMonitoring receivablesWatch average collection period relative to firm’s credit termsUse aging schedule to monitor percentage of overdue payments Collection policyDelinquency letterTelephone callCollection agencyLegal action17-33Inventory ManagementInventory = large percentage of firm assetsInventory costs:Cost of carrying too much inventoryCost of not carrying enough inventoryInventory management objective = find the optimal trade-off between carrying too much inventory versus not enough17-34Types of InventoryManufacturing firmRaw material – production starting point Work-in-progressFinished goods – ready to ship or sellOne firm’s “raw material” = another’s “finished good”Derived vs. Independent demandDifferent types of inventory vary dramatically in terms of liquidity17-35Inventory CostsCarrying costs = 20–40% of inventory value per yearStorage and trackingInsurance and taxesLosses due to obsolescence, deterioration, or theftOpportunity cost of capitalShortage costsRestocking costsLost sales or lost customersReturn to Quick Quiz17-36Inventory ManagementClassify inventory by cost, demand, and needMaintain larger quantities of items that have substantial shortage costsMaintain smaller quantities of expensive itemsMaintain a substantial supply of less expensive basic materials17-37EOQ ModelEOQ = Economic Order QuantityEOQ minimizes total inventory costQ = inventory quantity in each order Q/2 = Average inventoryT = firm’s total unit sales per year T/Q = number of orders per yearCC = Inventory carrying cost per unitF = Fixed cost per orderReturn to Quick Quiz17-38EOQ ModelTotal carrying cost = (Average inventory) x (Carrying cost per unit) = (Q/2)(CC)Total restocking cost = (Fixed cost per order) x (Number of orders) = F(T/Q)Total Cost = Total carrying cost + Total restocking cost = (Q/2)(CC) + F(T/Q)17-39EOQ ModelTotal Cost = Total carrying cost + Total restocking cost = (Q/2)(CC) + F(T/Q)Q* Carrying costs = Restocking costs (Q*/2)(CC) = F(T/Q*)17-40Example: EOQConsider an inventory item that has carrying cost = $1.50 per unit. The fixed order cost is $50 per order and the firm sells 100,000 units per year.What is the economic order quantity?17-41Extensions to EOQSafety stocksMinimum level of inventory kept on handIncreases carrying costsReorder pointsInventory level at which you place an order to account for delivery time17-42Derived-Demand InventoriesMaterials Requirements Planning (MRP)Computer-based ordering/scheduling Works backwards from set finished goods level to establish levels of work-in-progress requiredJust-in-Time InventoryReorder and restock frequentlyJapanese systemKeiretsu = industrial groupKanban = card signaling reorder time17-43Quick QuizWhat is the difference between disbursement float and collection float? (Slide 17.5)What is credit analysis and why is it important? (Slide 17.30)What are the two main categories of inventory costs? (Slide 17.35)What components are required to determine the economic order quantity? (Slide 17.37)Chapter 17END