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1、ChapterOutline 27 1TracingCashandNetWorkingCapital27 2DefiningCashinTermsofOtherElements27 3TheOperatingCycleandtheCashCycle27 4SomeAspectsofShort TermFinancialPolicy27 5CashBudgeting27 6TheShort TermFinancialPlan27 7Summary Conclusions ExecutiveSummary Wearesolidlyintothethirdgreatquestionofcorpora
2、tefinance TheBalance SheetModeloftheFirm CurrentAssets FixedAssets1Tangible2Intangible Shareholders Equity CurrentLiabilities Long TermDebt Whatlong terminvestmentsshouldthefirmengagein TheCapitalBudgetingDecision TheBalance SheetModeloftheFirm Howcanthefirmraisethemoneyfortherequiredinvestments The
3、CapitalStructureDecision CurrentAssets FixedAssets1Tangible2Intangible Shareholders Equity CurrentLiabilities Long TermDebt TheBalance SheetModeloftheFirm Howmuchshort termcashflowdoesacompanyneedtopayitsbills TheNetWorkingCapitalInvestmentDecision NetWorkingCapital CurrentAssets FixedAssets1Tangibl
4、e2Intangible Shareholders Equity CurrentLiabilities Long TermDebt 27 1TracingCashandNetWorkingCapital CurrentAssetsarecashandotherassetsthatareexpectedtobeconvertedtocashwiththeyear CashMarketablesecuritiesAccountsreceivableInventoryCurrentLiabilitiesareobligationsthatareexpectedtorequirecashpayment
5、withintheyear AccountspayableAccruedwagesTaxes 27 2DefiningCashinTermsofOtherElements 27 2DefiningCashinTermsofOtherElements Anincreaseinlong termdebtandorequityleadstoanincreaseincash asdoesadecreaseinfixedassetsoradecreaseinthenon cashcomponentsofnetworkingcapital TheSourcesandUsesofCashStatementf
6、ollowsfromthisreasoning 27 3TheOperatingCycleandtheCashCycle Time Accountspayableperiod Operatingcycle Cashreceived Finishedgoodssold Firmreceivesinvoice Cashpaidformaterials 27 3TheOperatingCycleandtheCashCycle Inpractice theinventoryperiod theaccountsreceivableperiod andtheaccountspayableperiodare
7、measuredbydaysininventory daysinreceivablesanddaysinpayables 27 4SomeAspectsofShort TermFinancialPolicy Therearetwoelementsofthepolicythatafirmadoptsforshort termfinance TheSizeoftheFirm sInvestmentinCurrentAssetsUsuallymeasuredrelativetothefirm sleveloftotaloperatingrevenues FlexibleRestrictiveAlte
8、rnativeFinancingPoliciesforCurrentAssetsUsuallymeasuredastheproportionofshort termdebttolong termdebt FlexibleRestrictive TheSizeoftheInvestmentinCurrentAssets Aflexiblepolicyshort termfinancepolicywouldmaintainahighratioofcurrentassetstosales Keepinglargecashbalancesandinvestmentsinmarketablesecuri
9、ties Largeinvestmentsininventory Liberalcreditterms Arestrictiveshort termfinancepolicywouldmaintainalowratioofcurrentassetstosales Keepinglowcashbalances noinvestmentinmarketablesecurities Makingsmallinvestmentsininventory Allowingnocreditsales thusnoaccountsreceivable CarryingCostsandShortageCosts
10、 InvestmentinCurrentAssets Carryingcosts Totalcostsofholdingcurrentassets AppropriateFlexiblePolicy InvestmentinCurrentAssets Carryingcosts Totalcostsofholdingcurrentassets WhenaRestrictivePolicyisAppropriate InvestmentinCurrentAssets Carryingcosts Totalcostsofholdingcurrentassets AlternativeFinanci
11、ngPoliciesforCurrentAssets Aflexibleshort termfinancepolicymeanslowproportionofshort termdebtrelativetolong termfinancing Arestrictiveshort termfinancepolicymeanshighproportionofshort termdebtrelativetolong termfinancing AlternativeFinancingPoliciesforCurrentAssets Inanidealworld short termassetsare
12、alwaysfinancedwithshort termdebtandlong termassetsarealwaysfinancedwithlong termdebt Inthisworld networkingcapitalisalwayszero FinancingPolicyforanIdealizedEconomy Currentassets Short termdebt Grainelevatoroperatorsbuycropsafterharvest storethem andsellthemduringtheyear Inventoryisfinancedwithshort
13、termdebt Networkingcapitalisalwayszero 27 5CashBudgeting Acashbudgetisaprimarytoolofshort tunfinancialplanning Theideaissimple Recordtheestimatesofcashreceiptsanddisbursements CashReceiptsArisefromsales butweneedtoestimatewhenweactuallycollect CashOutflowPaymentsofAccountsPayableWages Taxes andother
14、ExpensesCapitalExpendituresLong TermFinancialPlanning 27 5CashBudgeting Thecashbalancetellsthemanagerwhatborrowingisrequiredorwhatlendingwillbepossibleintheshortrun 27 6TheShort TermFinancialPlan Themostcommonwaytofinanceatemporarycashdeficittoarrangeashort termloan UnsecuredLoansLineofcreditdownatt
15、hebankSecuredLoansAccountsreceivablefinancingcaneeitherassignedorfactored Inventoryloansuseinventoryascollateral OtherSourcesBanker sacceptancesCommercialpaper 27 7Summary Conclusions Thischapterintroducesthemanagementofshort termfinance Weexaminetheshort termusesandsourcesofcashastheyappearonthefir
16、m sfinancialstatements Weseehowcurrentassetsandcurrentliabilitiesariseintheshort termoperatingactivitiesandthecashcycleofthefirm Fromanaccountingperspective short termfinanceinvolvesnetworkingcapital 27 7Summary Conclusions Managingshort termcashflowsinvolvestheminimizationofcosts Thetwomajorcostsare Carryingcosts theinterestandrelatedcostsincurredbyoverinvestinginshort termassetssuchascashShortagecosts thecostofrunningoutofshort termassets Theobjectiveofmanagingshort termfinanceandshort termfin
