Unformatted text preview: rtterm Financial Planning
• Shortterm finance is the analysis of decisions that affect current assets (CA) and current liabilities (CL) • These decisions will frequently have an impact on the firm within a year. • Focus on net working capital (NWC).
• NWC = CA – CL 9 Components of Working Capital
ST loans to affiliates
86,918 Current Liabilities
LT loan payments < 1 yr 22,373
1,841 Other CL
60,319 10 Issues in Shortterm Financial Planning
• ST financial policy issues implicit in a table such as this: – How much should I invest in current assets? Which ones? – What is a reasonable level of cash to keep? – How much inventory should the firm carry? – How much credit should be extended to customers? – How do I finance the current assets? • ST vs. LT liabilities • Loans vs. deferring payments – How much should the firm borrow short term? 11 Tracing Cash
Balance Sheet in year t
Current Assets (CA)
Current Liabilities (CL) Cash Marketable Securities Accounts Receivable Inventories
Net PPE (NPPE) Accounts Payable Notes Payable Accrued Expenses
LongTerm Debt (LTD) Common Stock (S)
Retained Earnings (RE) Cash = LTD + S + RE + CL – CA (excl. cash) – NPPE ∆Cash = ∆LTD + ∆S + ∆RE + ∆CL – ∆CA (excl.cash) – ∆NPPE 12 Deriving ∆Cash ∆Cash = ∆LTD + ∆S + ∆RE + ∆CL – ∆CA (excl. cash) – ∆NPPE ∆RE = NI – Dividends ∆RE = NI – Dividends + Depreciation – Depreciation = OCF – Dividends – Depreciation (OCF = NI + Dep.) ∆Cash = ∆LTD + ∆S + ∆CL – ∆CA (excl. cash) – ∆NPPE – Depreciation + OCF – Dividends (Recall ∆GPPE = ∆NPPE + Depreciation) ∆Cash = ∆LTD + ∆S + ∆CL – ∆CA (excl. cash) – ∆GPPE + OCF – Dividends 13 Deriving ∆Cash ∆Cash = ∆LTD + ∆S + ∆CL – ∆CA (excl. cash) – ∆GPPE + OCF – Dividends
CF from operating activities = OCF + [∆CL – ∆CA (excl. cash)]
CF from investing = – ∆GPPE CF from financing = ∆LTD + ∆S – Dividends ∆Cash = CF from operating activities + CF from investing + CF from financing
14 Sources and Uses of Cash
∆Cash = ∆LTD + ∆S + ∆CL – ∆CA (excl. cash) – ∆GPPE +OCF – Dividends , where OCF = NI + Dep.
Sources of cash: Uses of cash: Long-term debt issued Long-term debt reduce...
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- Spring '13
- Balance Sheet, Generally Accepted Accounting Principles, cash cycle