上海交通大学：《财务管理》教学资源（PPT课件，英文版）Chapter 21 Working Capital Management

Chapter 21 Working Capital Management 0

0 Chapter 21 Working Capital Management

Chapter Outline Cash Management:Collection,Disbursement, and Investment Credit and Receivables Inventory Management Inventory Management Techniques

1 Chapter Outline n Cash Management: Collection, Disbursement, and Investment n Credit and Receivables n Inventory Management n Inventory Management Techniques

Reasons for Holding Cash Speculative motive-hold cash to take advantage of unexpected opportunities Precautionary motive-hold cash in case of emergencies Transaction motive-hold cash to pay the day-to- day bills Trade-off between opportunity cost of holding cash relative to the transaction cost of converting marketable securities to cash for transactions

2 Reasons for Holding Cash n Speculative motive – hold cash to take advantage of unexpected opportunities n Precautionary motive – hold cash in case of emergencies n Transaction motive – hold cash to pay the day-to- day bills n Trade-off between opportunity cost of holding cash relative to the transaction cost of converting marketable securities to cash for transactions

Cash Collection Payment Payment Payment Cash Mailed Received Deposited Available Mailing Time→Processing Delay.→+Availability Delay→ Collection Delay One of the goals of float management is to try to reduce the collection delay.There are several techniques that can reduce various parts of the delay. 3

3 Cash Collection Payment Payment Payment Cash Mailed Received Deposited Available Mailing Time Processing Delay Availability Delay Collection Delay One of the goals of float management is to try to reduce the collection delay. There are several techniques that can reduce various parts of the delay

Cash Disbursements Slowing down payments can increase disbursement float-but it may not be ethical or optimal to do this Controlling disbursements Zero-balance account Controlled disbursement account 4

4 Cash Disbursements n Slowing down payments can increase disbursement float – but it may not be ethical or optimal to do this n Controlling disbursements q Zero-balance account q Controlled disbursement account

Investing Cash Money market -financial instruments with an original maturity of one year or less Temporary Cash Surpluses Seasonal or cyclical activities-buy marketable securities with seasonal surpluses;convert securities back to cash when deficits occur Planned or possible expenditures-accumulate marketable securities in anticipation of upcoming expenses 5

5 Investing Cash n Money market – financial instruments with an original maturity of one year or less n Temporary Cash Surpluses q Seasonal or cyclical activities – buy marketable securities with seasonal surpluses; convert securities back to cash when deficits occur q Planned or possible expenditures – accumulate marketable securities in anticipation of upcoming expenses

Figure 17.4 Dollars Total financing Bank needs loans Short-term Marketable financing securities Long-term financing Time(quarters) 0 1 2 3 Time 1:A surplus cash position exists.Seasonal demand for current assets is low.The surplus is invested in short-term marketable securities. Time 2:A deficit cash position exists.Seasonal demand for current assets is high.The financial deficit is financed by selling marketable securities and by bank borrowing. 6

6 Figure 17.4

Characteristics of Short-Term Securities Maturity -firms often limit the maturity of short-term investments to 90 days to avoid loss of principal due to changing interest rates Default risk-avoid investing in marketable securities with significant default risk Marketability -ease of converting to cash Taxability -consider different tax characteristics when making a decision

7 Characteristics of Short-Term Securities n Maturity – firms often limit the maturity of short-term investments to 90 days to avoid loss of principal due to changing interest rates n Default risk – avoid investing in marketable securities with significant default risk n Marketability – ease of converting to cash n Taxability – consider different tax characteristics when making a decision

Credit Management:Key Issues Granting credit increases sales Costs of granting credit Chance that customers won't pay Financing receivables Credit management examines the trade-off between increased sales and the costs of granting credit 8

8 Credit Management: Key Issues n Granting credit increases sales n Costs of granting credit q Chance that customers won’t pay q Financing receivables n Credit management examines the trade-off between increased sales and the costs of granting credit

The Cash Flows from Granting Credit Credit Sale Check Mailed Check Deposited Cash Available Cash Collection Accounts Receivable 9

9 The Cash Flows from Granting Credit Credit Sale Check Mailed Check Deposited Cash Available Cash Collection Accounts Receivable