STF-Ch08-Slides-Pres-Version

STF-Ch08-Slides-Pres-Version - STF&WCM Chapter 8...

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STF&WCM: Chapter 8 Introduction to Working Capital Management Presentation Version 1 Copyright 2011 - The Resource Alliance - All Rights Reserved
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Overview of Chapter Topics Overview of Working Capital The Working Capital Cash Conversion Cycle (CCC) How Changes in Current Accounts Impact External Financing Working Capital Investment and Financing 2 Copyright 2011 - The Resource Alliance - All Rights Reserved
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The Working Capital Cash Conversion Cycle (CCC) Copyright 2011 - The Resource Alliance - All Rights Reserved 3 Day 1 Day 30 Day 45 Day 80 Purchase Of Materials Payment For Materials Sale of Product Collect Accounts Receivable Days Inventory Days Receivables Days Payables Cash Conversion Cycle
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The Working Capital Cash Conversion Cycle (CCC) Calculation of the following items will be covered in detail in Chapter 9 Days’ Inventory or Inventory Conversion Period Days’ Receivables or Receivables Conversion Period Days’ Payables or Payables Conversion Period Calculating the Cash Conversion Cycle (CCC) 4 Copyright 2011 - The Resource Alliance - All Rights Reserved
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More on Cash Conversion Cycle (CCC) Assume the following Days’ Inventory = 45 days Days’ Receivables = 35 days Days’ Payables = 30 days Then: CCC = 45 + 35 – 30 = 50 days Now assume the company can reduce inventory and A/R, while extending payables Days’ Inventory = 40 days Days’ Receivables = 32 days Days’ Payables = 33 days Then New CCC = 40 + 32 – 33 = 39 days 5 Copyright 2011 - The Resource Alliance - All Rights Reserved CCC = Days’ Inventory + Days’ Receivables – Days’ Payables
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Problems in “Managing” CCC Components Potential lost sales Production stoppages Stretched payables Foregone cost-saving trade discounts Higher prices assessed by vendors on smaller orders or slow payments Copyright 2011 - The Resource Alliance - All Rights Reserved 6
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How Changes in Current Accounts Impact External Financing Changes in Current Assets May require additional financing Changes in Current Liabilities Some liabilities are spontaneous 7 Copyright 2011 - The Resource Alliance - All Rights Reserved
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Working Capital Investment and Financing Strategies 8 Copyright 2011 - The Resource Alliance - All Rights Reserved Asset Breakdown Maturity Matching Conservative Policy Aggressive Policy Fixed Assets Permanent Current Assets Fluctuating Current Assets Long-Term Sources Short-Term Sources Long-Term Sources S/T Sources Long-Term Sources Short-Term Sources Selecting a Current Asset Investment Strategy Restrictive current asset investment Relaxed current asset investment Selecting a Current Asset Financing Strategy
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STF-Ch08-Slides-Pres-Version - STF&WCM Chapter 8...

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