Chap9_2009 - Chapter 9 Cash and Marketable Securities...

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Chapter 9 Cash and Marketable Securities Management
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Learning Objectives After studying Chapter 9, you should be able to: Explain the difference between the flow of funds (sources and uses of funds) statement and the statement of cash flows -- and understand the benefits of using each. Define "funds" and identify sources and uses of funds. Create a sources and uses of funds statement, make adjustments, and analyze the final results. Describe the purpose and content of the statement of cash flows as well as implications that can be drawn from it. Prepare a cash budget from forecasts of sales, receipts, and disbursements -- and know why such a budget should be flexible. Develop forecasted balance sheets and income statements. Understand the importance of using probabilistic information in forecasting financial statements and evaluating a firm's condition.
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• Motives for Holding Cash • Speeding Up Cash Receipts • S-l-o-w-i-n-g D-o-w-n Cash Payouts • Electronic Commerce • Outsourcing • Cash Balances to Maintain • Investment in Marketable Securities Topics
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Motives for Holding Cash Transactions Motive -- to meet payments arising in the ordinary course of business Speculative Motive -- to take advantage of temporary opportunities Precautionary Motive -- to maintain a cushion or buffer to meet unexpected cash needs
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Cash Management System Collections Disbursements Marketable securities investment Control through information reporting = Funds Flow = Information Flow
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Speeding Up Cash Receipts • Expedite preparing and mailing the invoice • Accelerate the mailing of payments from customers • Reduce the time during which payments received by the firm remain uncollected Collections
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Collection Float Collection Float : total time between the mailing of the check by the customer and the availability of cash to the receiving firm. Processing Float Availability Float Mail Float Deposit Float
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Mail Float Mail Float : time the check is in the mail. Customer mails check Firm receives check
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Processing Float Processing Float : time it takes a company to process the check internally. Firm deposits check Firm receives check
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Availability Float Availability Float : time consumed in clearing the check through the banking system. Firm deposits check Firm’s bank account credited
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Deposit Float Deposit Float : time during which the check received by the firm remains uncollected funds. Processing Float Availability Float
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Earlier Billing Accelerate preparation and mailing of invoices computerized billing invoices included with shipment invoices are faxed advance payment requests preauthorized debits
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Preauthorized Payments Preauthorized debit The transfer of funds from a payor’s bank account on a specified date to the payee’s bank account; the transfer is initiated by the payee with the payor’s advance authorization.
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Lockbox Systems Traditional Lockbox A post office box maintained by a firm’s bank that is used as a receiving point for customer remittances. Electronic Lockbox
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Chap9_2009 - Chapter 9 Cash and Marketable Securities...

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