Session6 - AFP Learning System: Treasury Session 6 Module...

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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 1 AFP Learning System: Treasury Session 6 Module 3: U.S. Cash Management
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 2 Session 6, Module 3: U.S. Cash Management Chapter 10: Liquidity Management
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 3 Chapter 10: Liquidity Management—Outline Liquidity Management Cash Forecasting Short-Term Investments Short-Term Financing Outsourcing of Liquidity Management
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 4 Cash Flow Diagram With Investing and Borrowing Concentrated cash position Cash outflows (disbursements) Cash inflows (various sources) Short-term investments Short-term borrowing $ $ $ $
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 5 Speculative Requirements Precautionary Requirements Transactions Requirements Why Liquidity Is Needed
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 6 Objectives of Cash Forecasting Liquidity management Schedule investment maturities Anticipate borrowing requirements Meeting strategic objectives Capital budgeting Financial control and risk management Managing currency exposure
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 7 Predictable Certain Degrees of Certainty Known in advance (e.g., interest, debt principal repayments, dividends, royalties and tax payments) Can be predicted with reasonable accuracy; prediction of future cash flows can be made based on past observations (e.g., cash collections from credit sales, payroll and clearing of vendor checks) Difficult to forecast; involves experience and judgment (e.g., new product sales, unexpected repairs and claims and strike settlements) Less predictable
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 8 Forecasting Methods A/R balance pattern Percentage of sales that remain uncollected Distribution forecast Simple average Regression analysis Receipts and disbursements forecast Receipts schedule Disbursements schedule Completed forecast
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 6: Module 3, Chapter 10 - 9 A/R Balance Pattern for March Month Sales Sales Remaining A/R from Month Sales at End of March February January March April $250,000 $300,000 $400,000 $500,000 20% 55% 95% Remaining A/R as a % of Month Sales $50,000 $165,000 $380,000 The total outstanding A/R balance at the end of March is: $595,000 = ($50,000 + $165,000 + $380,000) The estimate of cash inflows for April = 5% of April sales + 40% of March sales + 35% of February sales + 20% of January sales: Estimated April inflows = (0.05 × $500,000) + (0.40 × $400,000) + (0.35 × $300,000) + (0.20 × $250,000) = $340,000
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v1.1 © 2004 Association for Financial Professionals. All rights reserved.
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Session6 - AFP Learning System: Treasury Session 6 Module...

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