Power Point - Finman

8/7/2019 Power Point - Finman

1/38

By: Sharon Tenozo-Lucob


2/38


3/38


4/38


5/38

`Key Terms:

1. Self- Liquidating Assets

2. Temporary Current Assets

3. Permanent Current Assets


6/38


7/38


8/38

` It is the equal monthly production

used to smooth out production

schedules and employ manpowerand equipment more efficiently

and at a lower cost.


9/38


10/38

` Example:

Yawakuzi Motorcycle Company manufactures andsells motorcycles in the snowy U.S. Midwest. Notto many people will be buying motorcycles duringOctober through March, but sales will pick up in

early spring and summer and will again trail offduring fall. Because of the fixed assets and theskilled labor involved in the production process,Yawakuzi decides that level of production is theleast expensive and the most efficient productionmethod.


11/38

1st

quarter

2nd

quarter

3rd

quarter

4th

quarter

October 300 January 0 April 1,000 July 2,000

November 150 February 0 May 2,000 August 1,000

December 50 March 600 June 2,000 September 500

Total Sales of 9,600 units at P3,000 each = 28,000,000 in sales


12/38

Beginning

Inventory

(+)

Production(level

production)

(-)

Sales

(=)

EndingInventory

Inventory

(at cost ofP2,000 per

unit)

October 800 800 300 1,300 P2.6M

November 1,300 800 150 1,950 3.9M

December 1,950 800 50 2,700 5.4M

January 2,700 800 0 3,500 7.0M

February 3,500 800 0 4,300 8.6M

March 4,300 800 600 4,500 9.0M

April 4,500 800 1000 4,300 8.6M

May 4,300 800 2000 3,100 6.2M

June 3,100 800 2000 1,900 3.8M

July 1,900 800 2000 700 1.4M

August 700 800 1000 500 1.0M

September 500 800 500 800 1.6M


13/38

Table 3

Sales Forecast, cash receipts and payments, and cash budget

October November December January February March April May June July August September

Sales Forecast (in millions):

Sales (units) 300 150 50 0 0 600 1,000 2,000 2,000 2,000 1,000 500

Sales (unit price, P3,000) 0.90 0.45 0.15 0.00 0.00 1.80 3.00 6.00 6.00 6.00 3.00 1.50

Cash Receipts Schedule (in millions)

50% Cash 0.45 0.225 0.075 0 0 0.90 1.50 3.00 3.00 3.00 1.50 0.75

50% from prior month's sale 0.75 0.45 0.225 0.075 0 0 0.90 1.50 3.00 3.00 3.00 1.50

Total Cah Receipts 1.20 0.675 0.300 0.075 0 0.90 2.40 4.50 6.00 6.00 4.50 2.25

*Assumes September sales of P1.5 million

Cash Payments Schedule (millions)

Constant Production of 800 units/

month (cost P2,000/unit) 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6

Overhead 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4

Dividends and Interest - - - - - - - - - - 1.0 -

Taxes 0.3 0.3 0.3 0.3

Total cash payments 2.3 2.0 2.0 2.3 2.0 2.0 2.3 2.0 2.0 2.3 3.0 2.0

Cash Budget (millions, required minimum balance is 0.25 million)

Cash flow -1.10 -1.325 -1.70 -2.225 -2.00 -1.10 0.10 2.50 4.00 3.70 1.50 0.25

Beginning cash 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 1.1 2.6

Cumulative cash balance -0.85 -1.075 -1.45 -1.975 -1.75 -0.85 0.35 2.75 4.25 3.95 2.60 2.85

Monthly loan or (repayment) 1.10 1.325 1.70 2.225 2.00 1.1 -0.10 -2.5 -4.00 -2.85 0 0

Cumulative loan 1.10 2.425 4.125 6.350 8.35 9.45 9.35 6.85 2.85 0 0 0

Ending cash balance 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 1.10 2.60 2.85

**Assumes cash balance of P0.25 million at the beginning of October and that t his is the desired minimum cash balance.


14/38

Cash AccountsReceivable

Inventory Total CurrentAssets

October 0.25 0.450 2.6 3.30

November 0.25 0.225 3.9 4.375

December 0.25 0.075 5.4 5.725

January 0.25 0 7.0 7.25

February 0.25 0 8.6 8.85

March 0.25 0.90 9.0 10.15

April 0.25 1.50 8.6 10.35

May 0.25 3.00 6.2 9.45

June 0.25 3.00 3.8 7.05

July 1.10 3.00 1.4 5.5

August 2.60 1.50 1.0 5.10

September 2.85 0.75 1.6 5.20


15/38

Table 5

Cash Budget and assets for the second year with no growwth in sales (P millions)

End of

Second Year1st year

September October November December January February March April May June July August September

Cash Flow 0.25 -1.1 -1.325 -1.7 -2.225 -2 -1.1 0.1 2.5 4 3.7 1.5 0.25

Beginning Cash 2.6 2.85 1.75 0.425 0.25 0.25 0.25 0.25 0.25 0.25 0.25 3.7 5.2

Cumulative Cash Balance 1.75 0.425 -1.275 -1.975 -1.75 -0.85 0.35 2.75 4.25 3.95 5.2 5.45

Monthly Loan (or repayment) - - 1.525 2.225 2 1.1 -0.1 -2.5 -4 -0.25 - -

Cumulative Loan - - 1.525 3.75 5.75 6.85 6.75 4.25 0.25 0 - -

Ending Cash Balance 2.85 1.75 0.425 0.25 0.25 0.25 0.25 0.25 0.25 0.25 3.7 5.2 5.45

Total Current Assets

Ending Cash Balance 2.85 1.75 0.425 0.25 0.25 0.25 0.25 0.25 0.25 0.25 3.7 5.2 5.45

Accounts

eceivable 0.75 0.45 0.225 0.075 0 0 0.95 1.5 3 3 3 1.5 0.75

Inventory 1.6 2.6 3.9 5.4 7 8.6 9 8.6 6.2 3.8 1.4 1 1.6

Total Current Assets 5.2 4.8 4.55 5.725 7.25 8.85 10.2 10.35 9.45 7.05 8.1 7.7 7.8


16/38

Figure 1

The Nature of Asset Growth (Yawakuzi)


17/38


18/38


19/38


20/38


21/38


22/38


23/38


24/38

`1. for transaction balances

`2. for compensating balances

`3. for precautionary needs


25/38


26/38

Sales

AccountsReceivable

Cash

Inventory

Customers


27/38

Salesgeographical area

product or division

customer type

Accounts Receivable

0-30 days

31-60 days

61-90 days

91-120 days

CashInventory

finished goods

goods in process

raw materials

MarketableSecurities

Interest andDIvidends

Short-term LendersCommercial Banks

Nonbank lendersForeign banks and

lenders

Government TaxesIncome TaxesLocal TaxesOther Taxes

Materials and ServiceSuppliers: accounts

payableLabor: wages payable

OtherExpenses

CustomersFigure No. 6

Expanded Cash Flow

Cycle


28/38

`1. Float

`2. Lockbox System

`3. Cost-Benefit Analysis`4. Electronic Fund Transfer


29/38

` Involves the selection of variousshort-term investments.


30/38

` 1. Yield` 2. Maturity

` 3. Minimum Investment Required

` 4. Safety` 5. Marketability


31/38

`Accounts Receivable and InventoryManagement require credit and inventory level

decisions made with an eye toward profitability.

`As is true of other current assets, accounts

receivable should not be judged too high or toolow based on historical standards of industry

norms, but rather the test should be whether the

level of return we are able to earn from this

asset equals or exceeds the potential gain fromother investments.


32/38

`1. Credit Standards`2. Terms of Trade

`3. Collection Policy


33/38

` All forms of inventory are needed to be financed andtheir efficient management can increase a firms

profitability. However, the amount of inventories is not

always totally controlled by company management

because it is affected by sales, production and economic

conditions. Inventory is the least liquid of current assets,therefore, it should provide the highest yield to justify the

investment. While financial managers may have direct

control over the management of other current assets,

control over inventory policy is generally shared withproduction management and marketing.


34/38

`1. Level Production versus

Seasonal Production

`2. Inventory Policy in Inflation

and Deflation


35/38

`

1.E

conomic Ordering Quantity(EOQ)

`2. Just-in-Time Inventory (JIT)


36/38


37/38

` 1. Bank Overdraft

` 2. Credit Card

` 3.Trade Credit

` 4. Lease

` 5. Bank Loans

` 6. Commercial Paper

` 7. Foreign Borrowing

` 8. Accounts Receivable Financing

` 9. Inventory Financing

` 10. Hedging


38/38

Power Point - Finman

Documents

Transcript of Power Point - Finman