0
Financial Management Short-Term Financial Planning
Topics Covered <ul><li>Links Between Long-Term and Short-Term Financing Decisions </li></ul><ul><li>Tracing Changes in Cas...
Firm’s Cumulative Capital Requirement Lines A, B, and C show alternative amounts of long-term finance. Strategy A:  A perm...
LA Gear Profit & Assets
LA Gear Debt & Equity Figures in $millions
Working Capital <ul><li>Simple Cycle of Operations </li></ul>Cash Finished goods inventory Receivables Raw materials inven...
Cash Conversion Cycle <ul><li>Cash conversion cycle = (inventory period + receivables period – accounts payable period) </...
Changes in Cash & W.C. <ul><li>Example  - Dynamic Mattress Company </li></ul>
Changes in Cash & W.C. <ul><li>Example  - Dynamic Mattress Company </li></ul>Assume  dividend = Rs.1 mil R.E.=Rs.11 mil
Changes in Cash & W.C. <ul><li>Example  - </li></ul><ul><li>Dynamic  </li></ul><ul><li>Mattress  </li></ul><ul><li>Company...
Changes in Cash & W.C. <ul><li>Example  - Dynamic Mattress Company </li></ul><ul><li>Dynamic used cash as follows: </li></...
Changes in Cash & W.C. Example  - Dynamic Mattress Company Condensed Balance Sheet
Changes in Cash & W.C. <ul><li>Example  - Dynamic Mattress Company </li></ul><ul><ul><li>Condensed Balance Sheet  </li></u...
Cash Budgeting <ul><li>Steps to preparing a cash budget </li></ul><ul><li>Step 1 - Forecast the sources of cash. </li></ul...
Cash Budgeting <ul><li>Example  - Dynamic Mattress Company </li></ul><ul><li>Dynamic forecasted  sources  of cash </li></u...
Cash Budgeting <ul><li>Example  - Dynamic Mattress Company </li></ul><ul><li>Dynamic collections on AR </li></ul>
Cash Budgeting <ul><li>Example  - Dynamic Mattress Company </li></ul><ul><li>Dynamic forecasted  uses   of cash </li></ul>...
Cash Budgeting <ul><li>Example  - Dynamic Mattress Company </li></ul><ul><li>Dynamic  </li></ul><ul><li>cash budget </li><...
Cash Budgeting <ul><li>Example  - Dynamic Mattress Company </li></ul><ul><li>Dynamic short term financing requirements </l...
A Short Term Financing Plan <ul><li>Example  - Dynamic Mattress Company </li></ul><ul><li>Dynamic forecasted deferrable ex...
A Short Term Financing Plan <ul><li>We assume that Dynamic can borrow up to 40mn from bank at 8% annual or 2% per quarter....
A Short Term Financing Plan <ul><li>Example  -  </li></ul><ul><li>Dynamic  </li></ul><ul><li>Mattress  </li></ul><ul><li>C...
Sources of Short Term Borrowing <ul><li>Bank loans </li></ul><ul><li>Commitment </li></ul><ul><li>Maturity </li></ul><ul><...
Upcoming SlideShare
Loading in...5
×

Short term planning

462

Published on

!st ch of financial mangement

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
462
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
24
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • 4
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • Transcript of "Short term planning"

    1. 1. Financial Management Short-Term Financial Planning
    2. 2. Topics Covered <ul><li>Links Between Long-Term and Short-Term Financing Decisions </li></ul><ul><li>Tracing Changes in Cash and Working Capital </li></ul><ul><li>Cash Budgeting </li></ul><ul><li>A Short-Term Financing Plan </li></ul><ul><li>Sources of Short Term Borrowing </li></ul>
    3. 3. Firm’s Cumulative Capital Requirement Lines A, B, and C show alternative amounts of long-term finance. Strategy A: A permanent cash surplus Strategy B: Short-term lender for part of year and borrower for remainder Strategy C: A permanent short-term borrower A B C Year 2 Year 1 Dollars Cumulative capital requirement Time
    4. 4. LA Gear Profit & Assets
    5. 5. LA Gear Debt & Equity Figures in $millions
    6. 6. Working Capital <ul><li>Simple Cycle of Operations </li></ul>Cash Finished goods inventory Receivables Raw materials inventory
    7. 7. Cash Conversion Cycle <ul><li>Cash conversion cycle = (inventory period + receivables period – accounts payable period) </li></ul><ul><li>Inventory period = average inventory /annual cost of goods sold / 365 </li></ul><ul><li>Account receivable period = average account receivable / annual sales/365 </li></ul><ul><li>Account payable period = average account payable /annual cost of goods sold / 365 </li></ul>
    8. 8. Changes in Cash & W.C. <ul><li>Example - Dynamic Mattress Company </li></ul>
    9. 9. Changes in Cash & W.C. <ul><li>Example - Dynamic Mattress Company </li></ul>Assume dividend = Rs.1 mil R.E.=Rs.11 mil
    10. 10. Changes in Cash & W.C. <ul><li>Example - </li></ul><ul><li>Dynamic </li></ul><ul><li>Mattress </li></ul><ul><li>Company </li></ul>
    11. 11. Changes in Cash & W.C. <ul><li>Example - Dynamic Mattress Company </li></ul><ul><li>Dynamic used cash as follows: </li></ul><ul><li>Paid Rs.1 mil dividend. </li></ul><ul><li>Repaid Rs.5 mil short term bank loan </li></ul><ul><li>Invested Rs.14 mil </li></ul><ul><li>Purchased Rs.5 mil of marketable securities </li></ul><ul><li>Accounts receivable expanded by Rs.5 mil </li></ul>
    12. 12. Changes in Cash & W.C. Example - Dynamic Mattress Company Condensed Balance Sheet
    13. 13. Changes in Cash & W.C. <ul><li>Example - Dynamic Mattress Company </li></ul><ul><ul><li>Condensed Balance Sheet </li></ul></ul>
    14. 14. Cash Budgeting <ul><li>Steps to preparing a cash budget </li></ul><ul><li>Step 1 - Forecast the sources of cash. </li></ul><ul><li>Step 2 - Forecast uses of cash. </li></ul><ul><li>Step 3 - Calculate whether the firm is facing a cash shortage or surplus. </li></ul>
    15. 15. Cash Budgeting <ul><li>Example - Dynamic Mattress Company </li></ul><ul><li>Dynamic forecasted sources of cash </li></ul><ul><li>AR ending balance = AR beginning balance + sales - collections </li></ul>
    16. 16. Cash Budgeting <ul><li>Example - Dynamic Mattress Company </li></ul><ul><li>Dynamic collections on AR </li></ul>
    17. 17. Cash Budgeting <ul><li>Example - Dynamic Mattress Company </li></ul><ul><li>Dynamic forecasted uses of cash </li></ul><ul><li>Payment of accounts payable </li></ul><ul><li>Labor, administration, and other expenses </li></ul><ul><li>Capital expenditures </li></ul><ul><li>Taxes, interest, and dividend payments </li></ul>
    18. 18. Cash Budgeting <ul><li>Example - Dynamic Mattress Company </li></ul><ul><li>Dynamic </li></ul><ul><li>cash budget </li></ul>
    19. 19. Cash Budgeting <ul><li>Example - Dynamic Mattress Company </li></ul><ul><li>Dynamic short term financing requirements </li></ul>
    20. 20. A Short Term Financing Plan <ul><li>Example - Dynamic Mattress Company </li></ul><ul><li>Dynamic forecasted deferrable expenses(80% of payable) </li></ul>
    21. 21. A Short Term Financing Plan <ul><li>We assume that Dynamic can borrow up to 40mn from bank at 8% annual or 2% per quarter. </li></ul><ul><li>Now if we deferred the payment then minimum of 5% loss will incur due to early payment discount, Or you have to pay 54.6mn instead of 52mn next quarter. </li></ul><ul><li>i-e 20% annually simple interest </li></ul><ul><li>Or 21.6% annually compounded interest(1.05pow4 – 1 =21.6%) </li></ul>
    22. 22. A Short Term Financing Plan <ul><li>Example - </li></ul><ul><li>Dynamic </li></ul><ul><li>Mattress </li></ul><ul><li>Company- </li></ul><ul><li>Financing Plan </li></ul>
    23. 23. Sources of Short Term Borrowing <ul><li>Bank loans </li></ul><ul><li>Commitment </li></ul><ul><li>Maturity </li></ul><ul><li>Rate of interest </li></ul><ul><li>Syndicated loans </li></ul><ul><li>Security </li></ul><ul><li>Commercial paper </li></ul>
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×