对外经济贸易大学公司理财教案(外文)05

对外经济贸易大学公司理财教案(外文)05 CORPORATE FINANCIALMANAGEMENTPART VWORKING CAPITALMANAGEMENT(chapter15-17)Chapter15FINANCIAL FORECASTINGAND WORKINGCAPITAL POLICYIntroduction1.Financial forecasting2.Working capital policy1.Financial forecastingzFinancialforecasting methodsPercent of salesCash budgetsPro formastatement of cash flowComputerized financialforecasting modelsForecasting withfinancial ratiosContinuedz Percentof sales:Relies ona forecastofsales/Obtains estimates of variablesas a%of salesForecastedCurrent LiabilityIncreases-Forecasted AssetIncreases=TotalFinancingNeededTied toa salesincreaseDividends-Forecasted EAT=Increased RetainedEarningsA portionof financingneeded generatedinternallyContinuedAdditional financingneeded:the differencebetween thetotal financingneeded andthe internalfinancing providedAdditionalFinancingNeeded=ExternalA/S(S)-CL/S(S)-EATDContinuedzCash budgetingA financialplanProjects receipts and disbursementsover futureperiods of timeo Receiptson creditsales lagprojected salesoPayments forpurchases dependon9How muchthe purchaseprecedes thesale9Credit termsoOther scheduledreceipts and disbursementsContinuedzPro-Forma Statementof CashFlowsMeasure theincreases and(decreases)in cashand cashequivalentsoCFs expectedfrom operationsoCFs expectedfrom investingactivitiesoCFs expectedfrom financingactivitiesAdd cashand cashequivalents atthe beginningof year=expected cashand cashequivalents endof yearContinuedzComputerized Forecastingand FinancialPlanningDeterministic modelUsessingle-value forecasts of eachfinancial variableProbabilistic modelsUtilizeprobability distributionsfor inputdataOptimization modelsChoosethe optimallevels ofsome variablesContinuedzForecasting WithFinancial RatiosForecasting bankruptcywith discriminantanalysis(5ratios)o Networking capital/Total assetsoRetained earnings/Total assetsoEBIT/Total assetsoMarket valueequity/Book valuetotal debtoSales/Total assets2.Working CapitalPolicyz Workingcapitalpolicy:Involves decisionsabout apanys currentassets(C/A)and currentliabilities(C/L)What theyconsist ofHow they are usedHow theirmix affectsthe risk-return characteristicsof thepanyz Workingcapital managementFirms optimallevel of C/AOptimal mixof S-T andL-T debtLevel ofinvestment ineach typeofC/ASpecific sourcesand mixof S-T creditthe firmshould employContinuedzWorking capitalRepresents assetsthat flowthrough the firmo Turnedover ata rapidrateo Usuallyrecovered duringthe operatingcycle wheninventories aresold andreceivables arecollectedNeeded becauseof theasynchronous natureof cashreceipts anddisbursementsContinuedz OperatingCycle:Characterized bythe timeintervals betweenthe followingdates:Date1Purchase ofresourcesDate2Pay forresource purchasesDate3Sell producton creditDate4Collect receivablesOperatingcycle=1to4Inventory conversionperiod=1to3Receivables conversionperiod=3to4Payables deferralperiod=1to2Cash conversioncycle=2to4ContinuedOperatingCycle=InventoryConversionPeriod+ReceivablesConversion PeriodInventoryConversionPeriod=Average InventoryCostof Sales/365ReceivablesConversionPeriod=Aounts ReceivableAnnualCredit Sales/365ContinuedPayablesDeferralPeriod=Aounts Payable+Salaries,Benefits&Payroll TaxesPayableCostofSales-Selling,Gen,Admin Exp(/365)Cash ConversionCycle=OperatingCycle-Payables DeferralPeriod?Appropriate Levelof WorkingCapitalConservative AggressiveC/A MoreLessProfitability LowerHigherRisk LowerHigherMore conservativepolicies oftenresult inlost salesdue torestrictive creditpoliciesOptimal levelof workingcapital investmentis thelevelwhich isexpected tomaximize shareholderwealth ContinuedContinuedzOptimal Levelof S-T andL-T DebtTerm structureof interestratesHigher riskwith S-T debtoRefundo FluctuatingS-T interestratesPermanent C/Ao Arenot affectedby seasonalor cyclicaldemandFluctuating C/AAre affectedby seasonalor cyclicaldemandMatching maturityof debtand assetsoConservative VsAggressiveChapter16THE MANAGEMENT OF CASHAND MARKETABLESECURITIESIntroduction1.Basic Concepts2.Cash managementfunction3.Reasons forholding liquid assets4.Contents ofcash management5.Marketable securitiesmanagement1.Basic ConceptszCash:consists ofcurrency anddeposits inchecking aountszMarketablesecurities:consist ofS-T investmentsmade withidle cash21zDetermining:The optimalsize of a firms liquidasset balanceThe mostefficient methodsof controllingthe collectionanddisbursementofcashThe appropriatetypes andamounts ofS-T investmentsConsiderrisk versusexpected returntrade-offs from alternative policies2.Cash ManagementFunction3.Reasons forHolding LiquidAssetszTransactionszPrecautionaryzFuture requirementszSpeculativezCompensating balances4.Contents ofcash managementzCashbudgetRequired becausecash inflowsand outflowsare seldomsynchronizedFirst stepin cashmanagementShow forecastedreceiptsanddisbursementsShow forecastof anycumulative shortagesor surplusesSeries ofcash budgetsDailyWeekly MonthlyContinuedzBank serviceMaintenance ofdisbursement andpayroll aountsCollection ofdepositsLines of creditTerm loansHandling ofdividend paymentsRegistration andtransfer ofstockSupply creditinformationConsulting adviceContinuedzDetermination of the optimalliquidassetbalanceCompensating balancerequirements establishlower limitHolding excessliquid assetsresults in an opportunitycostInadequate liquidbalances resultin shortagecostso Missingcash discountsoDeterioration of thefirms creditratingo Higherinterest costsoRisk ofinsolvencyContinuedzCash collectionOpportunities toincrease theavailable cashbalanceo FloatoDecentralized collectionsystemo Lock-boxo Wiretransferso Depositorytransfer check(DTC)o Electronicdepository transfercheck(EDTC)o Courierserviceo Preauthorizedcheck(PAC)ContinuedFloat oPositive-balance atbankfirms balanceoNegative-firm showsa higherbalance thanbankso Managements goal-speed collection/slow disbursementsoComponents offloat9Mail float9Processing float9Check clearingfloato Anumber ofsystems canbe usedto reducethe float28ContinuedLock boxsystem Localbank oFirm makesdisbursements offunds inexcess ofpensating balancesoInvolve significantfeeso Morebeneficial forsmall numberof largerdepositso Evaluationinvolves parisonof costsversus benefitsof fastercollectionContinuedSlowing CashDisbursementso Zero-balance system9Transfers cashin theexact amountrequired forthe clearedcheckso Drafts9Deposit fundsonly afterthe draftis presentedfor paymentoSynchronize depositswith checkclearings9Requires aurateestimatesoffloat4.Contents ofcash managementzChoosingMarketable SecuritiesDefault riskoLowest onU.S.Treasury securitiesoRisk andexpected returninversely relatedMarketabilityo Soldquickly withoutsignificant priceconcessionMaturityo Shortermaturities haveless riskof pricefluctuationRate ofreturno Leastimportant considerationContinued?Types ofmarketable securitiesT-Bills TreasuryIssues FedAgency S-T MunicipalSecurities NegotiableCDs CommercialPaper RepurchaseAgreements Bankers AeptanceEurodollar DepositsMoney MarketP/S MoneyMarket MutualFunds Moneymarket AountsChapter17MANAGEMENTOFACCOUNTS RECEIVABLEAND INVENTORYIntroduction1.Aounts receivablemanagement2.Inventory management1.aounts receivablemanagementz AountsReceivable(A/R)Large investmentfor mostpaniesEssentially aninvestment decisionExtend creditwhenever the marginal returnsfrom extendingcredit exceedthemarginalcostsLiberal credit policy providesreturns in the formof increasedsales andgross profitCostsCost offunds Costs ofcreditchecking Increase in baddebtTrade credit/Consumer creditContinuedzCredit policyCredit standardsoCriteria usedto screencredit applicationsoControls thequality ofaountsCredit termsoConditions underwhich creditextended mustbe repaidCollection effortsoMethods employedinanattempt tocollect paymenton past due aountsContinuedzCredit standardsQualityo Timea customertakes to repayo Probabilitya customerwill failtorepayDefault riskMeasures ofqualityo Averagecollection periodoBad-debt ratioContinuedNet Changein PretaxProfits FromGranting CreditMarginalprofitability of additional sales=Profit contributionratioAdditional salesAdditional investment in A/R=Additional ave.daily salesAve.collection periodCostof additionalinvestment in A/R=Additionalinvestment inA/RPretax requiredreturnContinuedNet Changein PretaxProfits FromGranting CreditAdditionalbad-debt loss=Bad-debt lossratioAdditional salesCostofadditionalinvestmentininventory=Additional inventoryPretax requiredreturnNet change in pretax profits=Marginal returns-Marginal costsContinuedzCredit termsCredit periodoTime allowedfor paymentCash discountoAllowed ifpayment ismade withina specificperiod oftimeo Specifiedas%oftheinvoiced amountoGranted tospeed upcollection ofA/RSeasonal datingoOffered toretailers onseasonal merchandiseoAept deliverywell aheadof peakseasono Payshortly afterpeak salesContinuedzCollection effortsBalance betweenleniency andalienating customersMonitoring statusoAging ofaounts Analysis9Classifying aountsinto categoriesaording tothe numberof daystheyarepastdue9Changes inthe ageposition ofaounts mayreveal changesinthequality ofA/RContinuedz AnalysisofachangeincreditpolicyIncrease inthe creditperiodo Increasethe quantityof goodssoldLiberalization ofcash discountoIncrease insales&pretaxprofit contributiono Reduction inA/R balance9Additional inefromalternativeinvestments9Decrease incost offunds9Reductionincash revenueIncreaseincollection effortoReduced salesand pretaxprofitcontributionoIncreased collectionexpenseso Reducedbad-debt lossesContinuedzEvaluation ofcredit applicationsGathering informationHow muchdose theanalysis cost?Numerical scoringsystemFive Csofcredito CharacterCapacityCapitalo CollateralConditions2.inventory managementzInventory(INV)Buffer inthe procurement-production-sales cycleFlexibilityo Timingthe purchaseof rawmaterialso Schedulingproduction facilities&employeeso Meetingfluctuating&uncertain demandInvestment offundsBenefits&costs ofholding inventoryContinuedz Typesof inventoryRaw materialsinventoryo Storesof