Where Did All My Profits Go? Mastering the Concept of Working Capital (Series: MBA Shortcut)

1. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Insert the cover image for this webinar on this slide entirely 1

2. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Practical and entertaining education for attorneys, accountants, business owners and executives, and investors. 2

3. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DISCLAIMER The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure the information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. About this PowerPoint: if you are looking at this PowerPoint without the benefit of listening to the conversation that surrounded it then you are doing yourself a disservice. This PowerPoint was prepared in contemplation of being viewed in conjunction with listening to a one hour webinar on the topic 3

4. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MEET THE FACULTY Moderator: Jonathan Friedland – Sugar Felsenthal Grais & Helsinger, LLP Panelists: David Maughan – Ankura Consulting Group Michael Schwarzmann – Independent CRO and Restructuring Advisor Randy Wilson – Cendrowski Corporate Advisors LLC Ken Yager – Newpoint Advisors Corporation 4

5. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS WEBINAR: Where Did All My Profits Go? Mastering the Concept of Working Capital Stated simply, Working Capital = Current Assets - Current Liabilities. This equation helps a company (and its financing sources) understand whether it has enough short term cash inflows to cover its short term cash outflows, also referred to as liquidity. But it’s not as simple as that. And, because it is the elemental center of cash flow, which in turn is the lifeblood of any business, it deserves much attention. Understanding the various parts of working capital will allow you to develop a plan for taming your working capital and, instead, have it work for you. In this webinar you will learn what parts of the balance sheet make up working capital and what actions cause the most problems with cash flow. It also covers best practices for managing working capital that will allow you to avoid working capital issues that can negatively impact cash flow, tax acceleration and make financing difficult to find. 5

6. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS SERIES: MBA Shortcut “If you don’t know your numbers, you don’t know your business.” This is a common refrain that is equally applicable to attorney and other consultants who work with businesses. This webinar series is designed for you if you are a startup founder, business owner, executive, investor, attorney or consultant who, though not a finance or accounting professional, finds herself needing to understand finance and accounting. It won’t make you an expert but it will give you the tools you need to speak with experts in order to get more out of them and it will provide a solid foundation on which you can build. Packed with illustrative examples, helpful anecdotes and real-world case studies, this series teaches you some of the key take things you need to understand about finance and accounting. 6

7. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EPISODES IN THIS SERIES 3/7/19 Episode #1: EBITDA and Other Scary Words 4/4/19 Episode #2: How to Read a Balance Sheet –And Why You Care! 5/9/19 Episode #3: The KPI- Cash Flow Modeling and Projections 6/6/19 Episode #4: Where Did All My Profits Go? Mastering the Concept of Working Capital 7 Dates shown are premiere dates. All webinars will be available On Demand approximately 4 weeks after they premiere.

8. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Episode #4: Where Did All My Profits Go? Mastering the Concept of Working Capital 8

9. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe CONCEPTS COVERED IN PAST EPISODES OF THIS SERIES • EBITDA & Other Scary Words • Balance Sheet Understanding & Analysis • Key Performance Indicators (“KPI”) 9

10. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe INTRODUCTION TO WORKING CAPITAL • What is Working Capital? ✓ Working Capital = Total Current Assets - Total Current Liabilities ✓ Positive working capital implies a company is able to pay off its short- term liabilities ✓ Negative working capital implies a company is unable to meet short- term liabilities with current assets ✓ Sometimes also referred to as “Circulating Capital” or “Short Term Capital” 1 0

11. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WORKING CAPITAL VS. FIXED CAPITAL • Fixed Capital=required for establishing a business • Working Capital= required to utilize a business’s fixed assets 1 1

12. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT ARE CURRENT ASSETS? • Cash and, generally, other assets that can be converted into cash easily, or within one year/accounting period. • Examples: ✓ Cash ✓ Receivables ✓ Inventory ✓ Marketable securities 1 2

13. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT ARE CURRENT LIABILITIES? • Generally, obligations requiring cash outflows due within one year/accounting period • Examples: ✓ Accounts payable ✓ Accrued expenses such as salary & wages and taxes ✓ Interest and debt due within one year ✓ Some warranty liability o If a company offers a multi-year warranty the bulk of the warranty liability would probably be a long-term liability ✓ Unearned revenues 1 3

14. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe THE IMPORTANCE OF WORKING CAPITAL • Maintaining Liquidity ✓ Understanding Working Capital key to preserving company’s liquidity position • Lender & Investor relations ✓ Working Capital used by current or potential lenders & investors to measure company’s strength/creditworthiness 1 4

15. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WORKING CAPITAL AND THE OPERATING CYCLE • Company’s operating cycle understood as time take to convert raw materials or inventory stock into cash • Working Capital directly affected by company’s operating cycle 1 5

17. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe GROSS WORKING CAPITAL • Broad measurement • Sum of all current assets (assets that are convertible to cash within a year or less) • Helps in determining return on investment in working capital and providing correct amount of working capital at right time 1 7

18. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe NET WORKING CAPITAL • Sum of all current assets less sum of all current liabilities • Helpful when tracked on trend line to show gradual improvement or decline 1 8

19. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe NET WORKING CAPITAL – POTENTIAL PITFALLS • Anomalies ✓ Isolated measurements may reflect anomalies in working capital skewing view of operations o e.g. net working capital measured at point in time where large, 1- time account payable unpaid, creating appearance of smaller net working capital figure. 1 9

20. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe NET WORKING CAPITAL – POTENTIAL PITFALLS (cont’d) • Lines of Credit ✓ Despite negative net working capital, company may still have line of credit capable of covering short-term funding shortfalls ✓ More nuanced view: plot net working capital against remaining available balance on the line of credit ✓ If line of credit nearly used in total, greater potential for liquidity problems 2 0

21. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe NET WORKING CAPITAL – POTENTIAL PITFALLS (cont’d) • Liquidity ✓ Current assets not necessarily very liquid ✓ May not be available for use in paying down short-term liabilities. o e.g. inventory may only be convertible to cash at steep discount; A/R may not be collectible in short term 2 1

22. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TYPES OF WORKING CAPITAL: BASIS OF TIME • Permanent/Fixed Working Capital ✓ Regular Working Capital ✓ Reserve Working Capital • Temporary/Variable Working Capital ✓ Seasonal Working Capital ✓ Special Working Capital 2 2

23. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PERMANENT/FIXED WORKING CAPITAL • Minimum investment required working capital regardless of fluctuation in business activity • “Permanent” is a misnomer ✓ Permanent/Fixed Working Capital not fixed forever ✓ Measured annually and influenced by company’s growth/contraction in given year 2 3

24. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PERMANENT/FIXED WORKING CAPITAL (cont’d) • Regardless, useful to company when making decisions relating to financing mix to cover working capital gaps • Permanent Working Capital can be financed with long term sources of funding: equity, debenture, long-term loans etc. ✓ Long-term sources of financing usually cheaper than short term sources 2 4

25. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TYPES OF PERMANENT/FIXED WORKING CAPITAL • Regular Working Capital: permanent working capital normally required in company’s ordinary operations for working capital cycle to flow smoothly • Reserve Working Capital: working capital cushion company must maintain over and above regular working capital for contingencies which may arise due to unexpected situations. 2 5

26. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TEMPORARY/VARIABLE WORKING CAPITAL • The difference between Net Working Capital and Permanent Working Capital • Stated another way: temporary fluctuation of Net Working Capital over and above Permanent Working Capital, based on additional Working Capital requirement arising out of demand for product during specific period or at specific time 2 6

27. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TYPES OF TEMPORARY/VARIABLE WORKING CAPITAL • Seasonal Working Capital ✓ Fluctuation in Net Working Capital caused by effect of season o Examples: agricultural products; school or sports uniforms; audit deadlines, local festivals; etc. • Special Working Capital ✓ Fluctuation in Net Working Capital caused by special unforeseen event o Examples: extreme weather conditions (extreme heat or cold); floods; famine; sudden change in government policy 2 7

28. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHY CLASSIFY TEMPORARY/ VARIABLE WORKING CAPITAL? • Temporary Working Capital preferably financed by short-term financing sources • Despite long-term sources of finance being cheaper, may be beneficial to adopt short term financing in relation to Temporary Working Capital because long term financing not easily redeemed • Short term finances have time flexibility, can be used and repaid when purpose is served. • Example: cash credit limit extended by lender. Interest on accrues on amount used for period of use only. Idle cash can be utilized to pay off outstanding short term finances and save on interest cost long term 2 8

29. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe FORECASTING • Companies must be able to measure relevant Working Capital history to develop accurate projections of future Working Capital needs and determining potential financing needs • Will aid in projecting company’s ability to grow over time • Can better understand working capital trends by analysis of working capital components as follows: ✓ Days Sales Outstanding as a measure of how many days, on average, Accounts Receivable are paid. ✓ Inventory Turns as a measure of how quickly, on average, Inventory is sold ✓ Days Payables Outstanding as a measure of how many days, on average, Accounts Payable are paid. 2 9

30. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WORKING CAPITAL MANAGEMENT POLICIES • Companies may employ specific policies governing Working Capital Management to maintain satisfactory levels of Working Capital • Considerations: ✓ Profitability, Risk, & Liquidity ✓ Composition & Level of Current Assets ✓ Composition & Level of Current Liabilities ✓ Industry 3 0

31. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HOW PAYMENT TERMS CAN IMPACT WORKING CAPITAL • Positive impacts to working capital ✓ Shorter customer terms ✓ Longer vendor terms ✓ Just in time vendor deliveries ✓ Low minimum vendor order quantities 3 1

32. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HOW PAYMENT TERMS CAN IMPACT WORKING CAPITAL (cont’d) • Negative impacts to working capital ✓ Longer customer terms ✓ Shorter vendor terms ✓ Long vendor lead times ✓ High minimum vendor order quantities 3 2

34. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Jonathan Friedland – jfriedland@sfgh.com Jonathan Friedland, a senior partner with Sugar Felsenthal Grais & Helsinger, LLP, views his job simply: to make money for clients whenever possible and to protect their interests at every turn. Licensed in four states, Jonathan’s transactional work focusses on representing private funds and other owners of private businesses, and the businesses they own. He regularly advises on M&A activities, structuring new ventures and restructuring old ones, and on other commercial relationships. Jonathan is rated AV® Preeminent™ by Martindale-Hubbell, 10/10 by AVVO, and enjoys several other similar distinctions. Jonathan graduated from the State University of New York at Albany, magna cum laude (in three years) and from the University of Pennsylvania Law School. He clerked for a federal judge before entering private practice and served for several years as an Adjunct Professor of Strategic Management at the University of Chicago’s Graduate School of Business. Jonathan is lead author and editor of several significant treatises, several chapters in other treatises, and scores of articles on law and business. 3 4

35. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe David Maughan – David.Maughan@ankura.com David Maughan is a Senior Managing Director. Prior to joining Ankura, he was a supervisory principal with Navigant Capital Advisors, the dedicated corporate finance business unit of Navigant Consulting Inc. David is a dual national Canada/US and is based out of the New York office. David is a career investment banker who has executed a broad range of corporate finance assignments. David has provided specialty financial advisory services to operating and financial companies for more than 40 years. During that time, he has worked with major companies and in entrepreneurial environments in the US, Canada, and Japan. David has executed private placement transactions in equity and debt and enjoys robust relationships with a large cross-section of private equity and hedge fund investors. 3 5

36. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Michael Schwarzmann – michaelschwarzmann@yahoo.com Michael Schwarzmann has over 20 years’ experience helping identify opportunities to create value for his clients. I have extensive experience working with established companies when they encounter financial difficulties by assisting them in developing solutions to address short term cash needs and longer term profitability. My process includes helping to identify cost savings and value capture scenarios by analyzing historical financial performance along with current operations and projecting optimizing strategies. Utilizing weekly and monthly cash flow statements, budgets, and forecasts, I utilize a focused, data driven approach to identifying opportunities to increase company profitability. Through a broad review of financial, operational and strategic performance, I help guide companies to increased profitability. Working across the organization, vertically and horizontally, uncovers additional solutions and generates greater buy-in of the goals, objectives and action plan, all of which are critical to maximize the impact of proposed changes. I utilize my legal knowledge to seamlessly work with counsel to identify and address legal issues in a more cost effective manner. I have guided the development and evaluation of business plans and formulated successful strategies to preserve or improve asset values. I am a consensus builder. Industry experience includes: health care, manufacturing, agricultural, construction, restaurants and franchising, energy and travel. 3 6

37. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Randy Wilson – rdw@cendsel.com Randy is a Senior Manager at Cendrowski Corporate Advisors, and brings more than two decades of experience in internal corporate and government investigations, fraud analyses, embezzlement detection and prevention, risk management analysis, and forensic accounting investigations. Randy works across CCA’s accounting and financial services, litigation support, risk services, and compliance consulting practice groups and advise clients on how to effectively assess and design internal control programs, implement best practices, and monitor the progress of internal compliance programs. Randy has experience across a range of industry sectors, including insurance, real estate, private equity, construction, state and local government, professional services, colleges and universities and food service, among others. With experience in accounting, financial reporting, and investigations, Randy regularly provides clients with counsel across a range of regulatory and SEC investigations. Previously, Randy directed the Chicago fraud and forensic practice as a Principal at Plante Moran, with prior experience at PriceWaterhouseCoopers and Deloitte, where he specialized in business recovery services and investigations. Randy graduated from Indiana University with a B.S. in Accounting and a J.D. degree from the Chicago-Kent College of Law. He is a Certified Public Accountant (CPA), Certified Fraud Examiner (CFE), and Certified in Financial Forensics (CFF). 3 7

38. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Ken Yager – KYager@newpointadvisors.us Ken Yager is has nearly two decades of executive business leadership experience. As Financial Advisor or in CRO, CEO and CFO roles, Mr. Yager regularly takes on profit and loss and risk-management responsibility for cash- constrained companies in growth, leveraged-buyout and turnaround situations. He also has successfully worked on implementing dozens of initiatives involving, operations and project management, team building, marketing, and sales and joint-venture management. He is a fierce advocate for stakeholder rights and pragmatic transparency. Ken has worked with clients in a variety of industries in over 60 engagements. He focuses on business services industries including media, information services, contact centers and field services. Ken earned a Bachelor’s degree in Management with majors in Finance and Accounting from Tulane University, A.B. Freeman School of Business, and received a Master of Management degree from J.L. Kellogg Graduate School of Management. He later served as President of the Kellogg Alumni Club. Ken is a member of the Chicago/Midwest chapter of the Turnaround Management Association (TMA) and is on the International Board as the Vice President of Education and chairs the Education Oversight Committee. He is also a member of The Commercial Finance Association (CFA). Ken is also a member of the Association for Corporate Growth (ACG), National Association of Corporate Directors (NACD) and the Media Financial Management (MFM) Association. To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/ken-yager/ 3 8

39. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe QUESTIONS OR COMMENTS? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 3 9

40. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT FINANCIAL POISE DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. Its websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com. 4 0 Our free weekly newsletter, Financial Poise Weekly, educates readers about business, business law, finance, and investing. To receive it simply add yourself by going to: https://www.financialpoise.com/newsletter/ Email addresses are never sold to or shared with third parties.

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