FIN%204260%20Chapter%203

FIN%204260%20Chapter%203 - ? Quote From CFO Magazine 6 The...

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Short-Term Financial Management Chapter 3 - Valuation Prepared by Patty Robertson May not be used without permission
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Part I - Introduction to Liquidity Chap ters Cove red Chapter 1 The Role of Working Capital Chapter 2 Solvency, Liquidity & Financial Flexibility Chapter 3 Valuation 2
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Valuation Chapter 3 Agenda 3 Sales A/R Cash Inv Apply time value of money (TVM) principles to short-term (ST) financial management decisions.
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Cash Flow Timeline 4 The cash conve rsion perio d is the time betwe The firm is a system of cash flows. These cash flows are unsynchronized and uncertain.
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Cost of Cash Conversion Period 5 Let’s first establish the cost of working capital. Assume a firm offers standard 30-day credit terms (it gets paid for sales 30- days after the sale is made). Assuming average daily sales are $200,000 and the cost of capital is 10%, what is the annual cost of extending trade credit
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Unformatted text preview: ? Quote From CFO Magazine 6 The 2010 CFO Working Capital Scorecard has the following quote: improving cash collections is a great way to drive cash generation, says Robert Daleo, the companys CFO. For us, one day of sales is around $8 million, so if you improve 10 days, youve got 80 million bucks. Valuation of ST Cash Flows 7 Each component of working capital (inventory, receivables, payables, accruals) has two dimensions time and amount . Cash flows can be converted to a value at a standard point in time (usually t = 0) so they can be compared. For example, to increase sales, a firm is considering modifying its credit terms from net 30 to net 45 days . Firms Decision 8 Show n is how the cash flows comp are. Does this decisi 0 30 Days $550,000 0 45 Days $600,000 Net 30: Net 45:...
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FIN%204260%20Chapter%203 - ? Quote From CFO Magazine 6 The...

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