Financial management
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Receivable Management

Receivable Management
Cash Management
Inventory Managment

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Financial management Presentation Transcript

  • 1. Prepared by: Bhargav Joshi Jaypal Chavda Nikit Rajani Jay Raval Vishal Ghoghari Dept. of Business Admin., Bhavnagar University, Bhavnagar. Guided by: Dr. B.C. AJMERA SUBMITTED TO: RECEIVABLE MANAGEMENT CASH MANAGEMENT INVENTORY MANAGEMENT
  • 2. ASPECTS OF MANAGEMENT OF DEBTORS CREDIT POLICY – Decision on credit period to be allowed , early payment discount rates etc .  CREDIT ANALYSIS – Decision on whether credit can be extended to a particular customer . CONTROL OVER RECEIVABLES –Step for debtor follow –up , faster collection of debtors.
  • 3. IMPORTANT OF PROPER MANAGEMENT OF RECEIVABLE  HIGH INVESTMENT  LOW INVESTMENT
  • 4. COSTS OF MAINTAINIG RECEIVABLES  INTEREST ON INVESTMENT  ADMINISTRATIVE COSTS  DELINQUENCY COSTS  COLLECTION COSTS  DEFAULTING COSTS
  • 5. FACTOR AFFECTING CREDIT PERIOD  NATURE OF PRODUCT  QUANTUM OF SALES  CUSTOMS AND PRACTIES  FUND AVALIABLE WITH THE COMPANY  CREDIT RISK
  • 6. FACTOR ANALYSED BEFORE CREDIT GRANT TO CUSTOMER  NATURE OF PRODUCT  NATURE OF CUSTOMER  QUANTITY PURCHASED  VALUE OF SALES  CREDIT WORTHNESS OF THE CUSTOMER  RISK OF BAD DEBTS
  • 7. IMPORTANT SOURCE OF CREDIT INFORMATION OF CUSTOMER  TRADE REFERENCE  BANK REFERANCE  CREDIT BUREAU REPORT  PAST EXPERIENCE  PUBLISHED FINANCIAL STATEMENT
  • 8. Basic steps of receivable management  Find out the profit  Find out the turn over  Find out the investment  Find out the total cost  Find out the next profit
  • 9. A company is selling a product of Rs.10, all credit sales of 30,000 units V.c. is 6 Rs, A.c. is Rs.8, F.c. is 60,000. collection period is 30 days. Company wants to relaxes its credit standards and that will result 15% increase in sales. The average collection period would be increase to 45 days. There is no any bed debt exp. O.c. is 15%. In the right of above case, should the firm relaxe the credit standard?
  • 10. CASH  Cash is one of the most liquid and important components of working capital.  Holding cash involves cost because the worth of cash held, after a year will be less than the value of cash as on today.  Excess of cash balance should not be kept in business because cash is a non-earning asset.  Hence, a proper and judicious cash management is of utmost importance in business.
  • 11. What Are The Primary Motive For Cash Management ? PREVENTION IS BETTER THAN CURE  TRANSCATION NEEDS  SPECULATIVE NEEDS  PRECAUTIONARY NEEDS  COMPENSATING NEEDS
  • 12. Objectives of cash management Meeting payment schedule • Prevent insolvency • Relationship is not strained with bank • Fostering good Relation • Cash discount can be availed • Good credit rating • Pay unexpected expenses Minimizing funds committed to cash balance  High level of cash balance  Low level of cash balance
  • 13. Factors determine the required cash balances Short costs expense incurred shortfall of cash Transaction cost brokerage incurred Borrowing cost borrowing to cover the shortage Loss of cash discount A substantial loss because of temporary shortage of cash Penalty rate by banks to meet a shortfall in compensating balance Excess cash balance cost Excessively large cash balance Procurement & management Establishing & operating cash mgt. staff & activity Salary , handling of security etc. Uncertainty & cash management Flood, fire etc.
  • 14. CASH MANAGEMENT MODEL MODEL CAN BE CLASSIFIED INTO THREE CATEGORIES • It assume that the demand for cash can be predicted with certainty , provides cost efficient transaction & conversion cost . BAUMOL MODELS C.C.= Tb⁄c • Optimum cash balance level which minimizes the cost of cash management MILLER-ORR MODELS M.O. = √3br2⁄4i • It can be determined through multiple linier programming methods . ORGLER’S ANALYTICAL MODELS Maximize profit= a1x1+a2x2
  • 15. Cash budget  Statement inflow & outflow cash estimate it’s short term requirement  The cash budget helps the firm to plan for the actual receipt and disbursement of cash.  It has three parts namely, cash collections, cash payments & cash balance  The company estimates the sales for each period during the planning period
  • 16. Cash management techniques/ process  Speedy cash collection  Prompt payment by customers  Every conversion of payments into cash  concentration banking  Lock box system  Slowing disbursements  Avoidance of early payment centralized disbursements
  • 17. Contents Meaning of Inventory Concept of inventory Types of inventory and Reasons for holding inventory Inventory costs Purpose of inventory Tools / Techniques for Inventory control Functions of inventory Reasons for inventory carrying Cost of inventory accumulation Major activities in inventory control Conclusion
  • 18. – Inventory refers to a stock of goods, commodities, or other economic resources that are held by firms at a particular time for their future production requirement and for meeting future demands. – Inventory management assist organizations in minimizing their inventory cost without compromising on their ability to respond quickly to customer demand. Meaning of Inventory
  • 19. – Inventory control refers to the process whereby the investment in materials and parts carried in stock is regulated within pre- determined limits set in accordance with the inventory policy established by the management.
  • 20. Important Of INVENTORY  Inventories represent a significant amount of firm's assets.  Inventories must be properly managed so that this investment doesn't become too large, as it would result in blocked capital which could be put to productive use elsewhere.  On the other hand, having too little or small inventory could result in loss of sales or loss of customer goodwill. An optimum level of inventory, therefore, should be maintained.
  • 21. 3/19/2014 23 Concept of inventory Inventory Can be defined as a usable resources which is physical and tangible. Inventory management aims at maintaining an adequate supply or something to meet the expected demand pattern subject to budgeting considerations.
  • 22. Inventory could be raw-materials, WIP, finished products or the spare parts and other indirect materials.
  • 23. Inventory turnover ratio = Annual demand / Average Inventory - It is an index of business performance. Sound management gives a higher inventory turnover ratio.
  • 24. Types of inventory and Reasons for holding inventory Raw materials Inventory Stores and Spares Work-in-Process Inventory Finished Goods Inventory Maintenance, repair, and operational (MRO) inventory
  • 25. Inventory costs Purchase cost - Cost of purchasing a unit of item Holding (or carrying) costs - Costs for storage, handling, insurance, etc. Setup (or production change) costs - Costs for arranging specific equipment setups, etc.
  • 26.  Ordering costs  Costs of placing an order, etc.  Stock out costs  Costs incurred due to shortage of stock, loss of sale etc.
  • 27. Cost Minimization Goal Ordering Costs Holding Costs Order Quantity (Q) C O S T ( Rs.) Annual Cost of Items (DC) Total Cost By adding the item, holding, and ordering costs together, we determine the total cost curve.
  • 28. Purpose of inventory Smooth production Better services to customers Protection against business uncertainties Take advantage of quantity discounts
  • 29. Reasons for Inventories  Improve customer service  Economies of purchasing  Economies of production  Transportation savings  Hedge against future  Unplanned shocks (labor strikes, natural disasters, surges in demand, etc.)  To maintain independence of supply chain
  • 30. Reasons Against Inventory  Non-value added costs  Opportunity cost  Complacency  Inventory deteriorates, becomes obsolete, lost, stolen, etc.
  • 31. Economic Order Quantity ( EOQ ) model ABC Analysis FSN Analysis HML Analysis Tools / Techniques for Inventory control
  • 32. Functions of inventory Regularizing demand and supply Economizing purchases or productions by lot buying or batch production Allowing Organizations to cope with perishable materials Inventory can store labour
  • 33. Cost of inventory accumulation Disadvantages of inventory accumulation  Locking up of working capital  More storage space  High storage charges  High taxes  Greater handling and distribution cost  Deterioration in quality Disadvantages of inventory depletion  Production stoppages  Idle machine capacity  Burden of fixed overhead  Failure to meet delivery order resulting into loss of goodwill
  • 34. Major activities in inventory control Planning the inventory Procurement of inventory Receiving and inspection of inventory Carrying and issuing of inventory Recording the receipts and issues of inventory Follow-up function Material standardization and substitution
  • 35.  In nutshell, we can say that the objective of inventory management is to order the right quantity, at the right time without disrupting the production process. Conclusion