财务管理基础课件：Current Asset Management

CurrentAssetManagement

ChapterOutlineIntroductiontomanagementofcurrentassetsCashmanagementanditsimportanceManagementofmarketablesecuritiesManagementofaccountsreceivable–creditpolicydecisionsformaximizingprofitabilityInventorymanagement–determiningthelevelofinventorytoenhancesalesandprofitabilityLiquidityandrequiredreturnIntroductionCompaniesthatmanagetheircurrentassetswell,establishacompetitiveadvantageHelpsincreasetheirmarketshareCreatesanincreaseinshareholdervaluethrougharisingstockpriceRequiresacarefulallocationofresourcesamongthecurrentassetsofthefirm:CashMarketablesecuritiesAccountsreceivableInventory.Introduction(cont’d)InmanagingcashandmarketablesecuritiesPrimaryconcernshouldbeforsafetyandliquiditySecondaryattentionshouldbeplacedonmaximizingprofitabilityInmanagingaccountsreceivableandinventory,astifferprofitabilitytestmustbemetInvestmentlevelshouldnotbearesultofhappenstanceorhistoricaldeterminationMustmeetthesamereturn-on-investmentcriteriaappliedtoanydecision.Differentdecisiontechniquesareappliedtothevariousformsofcurrentassets.CashManagementFinancialmanagersactivelyattempttokeepcash(non-earningasset)toaminimumItiscriticaltohavesufficientcashtoassuageemergenciesToimproveoverallprofitabilityofafirm:MinimizecashbalancesHaveaccurateknowledgeofwhencashmovesinandoutofthefirmReasonsforHoldingCashBalancesTransactionsmotivePaymentstowardsplannedexpensesCompensatingbalancesforbanksCompensateabankforservicesprovidedratherthanpayingdirectlyforthemPrecautionaryneedsEmergencypurposesCashFlowCycleCashmovesthroughafirminacycleCashflowrelieson:PaymentpatternofcustomersSpeedatwhichsuppliersandcreditorsprocesschecksEfficiencyofthebankingsystemInflowsandoutflowsofcasharetobesynchronizedproperlyfortransactionpurposes.CashFlowCycle(cont’d)Sellingontheinternetgeneratescashflowmuchfasterthansalesusingretailer’sowncreditcardFinancialmanagersmustpaycloseattentiontothepercentageofsalesgeneratedby:CashOutsidecreditcardsCompany’sowncreditcardsCashFlowCycle(cont’d)Cashinflowsaredrivenbysalesandinfluencedbythe:Customers’geographicallocationProductbeingsoldIndustryTypeofcustomersFirmsusecashtomakevariouspaymentsto:SuppliersLendersStockholdersGovernmentWorkersWhencashisneededforcurrentassets,firmsgenerally:SellthemarketablesecuritiesBorrowfromshort-termlendersExpandedCashFlowCycleFloatThetimeperiodbetweenthemailingofacheckandthecollectionperiodDifferencebetweenfirm’srecordedamountandamountcreditedtothefirmbyabankTwotypesoffloat:Mailfloat:Occursbecauseofthetimeamailtakesbeforeitgetsdelivered.Clearingfloat:Occursbecauseofthetimeachecktakesbeforeitgetscleared.Forlargecorporationsthesefloatsdonotexistanymorebecauseofelectronicpayments(permissibleunderCheck21Act)CheckClearingforthe21stCenturyAct(Check21)AllowsbanksandotherstoelectronicallyprocessacheckImprovingCollectionsandExtendingDisbursements

Improvingcollection:SettingupmultiplecollectioncentersatdifferentlocationsAdoptlockboxsystemforexpeditiouscheckclearanceatlowercostsExtendingdisbursement:Generaltrend:SpeedupprocessingofincomingchecksSlowdownpaymentproceduresExtendeddisbursementfloat–allowscompaniestoholdontotheircashbalancesforaslongaspossibleCost-BenefitAnalysisCostsassociatedwithanefficientlymaintainedcashmanagementprogrammustbecomparedtothebenefitsthatitprovidesCashManagementNetworkElectronicFundsTransferFundsaremovedbetweencomputerterminalswithouttheuseofa‘check’Automatedclearinghouses(ACH):TransfersinformationbetweenfinancialinstitutionsandbetweenaccountsusingcomputertapeInternationalfundtransferiscarriedoutthroughSWIFT(SocietyforWorldwideInterbankFinancialTelecommunications)UsesaproprietarysecuremessagingsystemEncryptseachmessageAuthenticateseverymoneytransactionbyacodeusingsmartcardtechnologyAssumesfinancialliabilityfortheaccuracy,completeness,andconfidentialityoftransactionInternationalCashManagementFactorsdifferentiatinginternationalcashmanagementfromdomesticbasedsystems:Differingpaymentmethodsand/orhigherpopularityofelectronicfundstransferSubjecttointernationalboundaries,timezonedifferences,currencyfluctuations,andinterestratechangesDifferingbankingsystemsandcheckclearingprocessesDifferingaccountbalancemanagementandinformationreportingsystemsCultural,tax,andaccountingdifferencesInternationalCashManagement(cont’d)FinancialmanagerstrytokeepcashinacountrywithastrongcurrencySweepaccount:AllowscompaniestomaintainzerobalancesExcesscashissweptintoaninterest-earningaccountMarketableSecuritiesFundsheldforotherthanimmediatetransactionpurposesshouldbeinvestedininterest-earningsecuritiesTypesofshortterminvestments:TreasurybillsFederalagencysecuritiesCertificateofdepositCommercialpaperBanker’sacceptancesEurodollarcertificateofdeposit.PassbooksavingsaccountMoneymarketfundMoneymarketaccountsAnExaminationofYieldandMaturityCharacteristicsTypesofShort-TermInvestmentsManagementofAccountsReceivableAccountsreceivableasaninvestmentShouldbebasedonwhetherthelevelofreturnearnedonsuchinvestmentequalsorexceedsthepotentialgainfromotherinvestmentsCreditpolicyadministrationCreditstandardsTermsoftradeCollectionpolicyCreditStandardsDeterminethenatureofcreditriskbasedon:Priorrecordsofpaymentandfinancialstability,currentnetworth,andotherrelatedfactors5Csofcredit:CharacterCapitalCapacityConditionsCollateralCreditStandards(cont’d)Dun&BradstreetInformationServices(DBIS):ProducesbusinessinformationanalysistoolsPublishesreferencebooksProvidescomputeraccesstoinformationAssignsDataUniversalNumberSystem(D-U-N-S)-auniquenine-digitcodetoeachbusinessinitsinformationbaseDun&BradstreetReport–AnExampleTermsofTradeStatedtermofcreditextension:HasastrongimpactontheeventualsizeofaccountsreceivablebalanceCreatesaneedforfirmstoconsidertheuseofcashdiscountsCollectionPolicyAnumberofquantitativemeasuresareappliedtoassescreditpolicy:AveragecollectionperiodAnincreasewouldindicatepoorcreditadministrationRatioofbaddebtstocreditsalesAnincreasingratiomayindicatetoomanyweakaccountsoranaggressivemarketexpansionpolicy

AgingofaccountsreceivableAnActualCreditDecisionAccountsreceivable=Sales=$10,000=$1,667Turnover6Anaverageinvestmentof$1,667isfetchingaposttaxprofitof$480,whichisapproximately28.8%.BringstogethervariouselementsofaccountsreceivablemanagementInventoryManagementInventoryhasthreebasiccategories:RawmaterialsWorkinprogressFinishedgoodsAmountofinventoryisaffectedbysales,production,andeconomicconditionsAsinventoryistheleastliquidofcurrentassets,itshouldprovidethehighestyieldLevelversusSeasonalProductionLevelproductionAllowsmaximumefficiencyinmanpowerandmachineryusageMayresultinhighinventorybuildupparticularlyinseasonalbusinessSeasonalproductionEliminatesinventorybuildupproblemsMayresultinunusedcapacityduringslackperiodsMayresultinovertimewagesandinefficienciesarisingoutofoverusedequipmentsInventoryPolicyinInflation(andDeflation)Inventorypositioncanbeprotectedinanenvironmentofpriceinstabilityby:TakingmoderateinventorypositionsHedgingwithafuturescontracttosellatastipulatedpricesomemonthsfromnowRapidpricemovementsininventorymayhaveamajorimpactonthereportedincomeofthefirmTheInventoryDecisionModelCarryingcostsInterestonfundstiedupininventoryCostofwarehousespace,insurancepremiums,andmaterialhandlingexpensesImplicitcostassociatedwiththeriskofobsolescenceandperishabilityOrderingcostsCostoforderingCostofprocessinginventoryintostockDeterminingtheOptimumInventoryLevelEconomicOrderingQuantityEOQ=2SO;CWhere,S=TotalsalesinunitsO=OrderingcostforeachorderC=CarryingcostperunitindollarsAssuming:S=2000units;O=$8;C=$0.20;EOQ=2SO=2X2,000X$8=$32,000=160,000C$0.20$0.20=400unitsSafetyStocksandStockOutsStockoutoccurswhenafirmis:OutofaspecificinventoryitemUnabletosellordelivertheproductSafetystockreducestheriskoflosingsalesIncreasescostofinventoryduetoariseincarryingcostsThiscostshouldbeoffsetby:EliminatinglostprofitsduetostockoutsIncreasedprofitsfromunexpectedordersSafetyStocksandStockOuts(cont’d)Assumingthat;EOQ=400unitsandsafetystock=50unitsAverageinventory=EOQ+Safetystock2Averageinventory=400+502Theinventorycarryingcostswillnowincreaseto$50Carryingcosts=Averageinventoryinunits×Carr