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1、Chapter 18 Short-Term Finance and Planning,McGraw-Hill/Irwin,Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.,Key Concepts and Skills,Understand the components of the cash cycle and why it is important Understand the pros and cons of the various short-term financing policies Be
2、 able to prepare a cash budget Understand the various options for short-term financing,18-2,Chapter Outline,Tracing Cash and Net Working Capital The Operating Cycle and the Cash Cycle Some Aspects of Short-Term Financial Policy The Cash Budget Short-Term Borrowing A Short-Term Financial Plan,18-3,So
3、urces and Uses of Cash,Balance sheet identity (rearranged) NWC + fixed assets = long-term debt + equity NWC = cash + other CA CL Cash = long-term debt + equity + CL CA other than cash fixed assets Sources Increasing long-term debt, equity, or current liabilities Decreasing current assets other than
4、cash, or fixed assets Uses Decreasing long-term debt, equity, or current liabilities Increasing current assets other than cash, or fixed assets,18-4,The Operating Cycle,Operating cycle time between purchasing the inventory and collecting the cash from sale of the inventory Inventory period time requ
5、ired to purchase and sell the inventory Accounts receivable period time required to collect on credit sales Operating cycle = inventory period + accounts receivable period,18-5,Cash Cycle,Cash cycle Amount of time we finance our inventory Difference between when we receive cash from the sale and whe
6、n we have to pay for the inventory Accounts payable period time between purchase of inventory and payment for the inventory Cash cycle = Operating cycle accounts payable period,18-6,Figure 18.1,18-7,Example Information,Inventory: Beginning = 200,000 Ending = 300,000 Accounts Receivable: Beginning =
7、160,000 Ending = 200,000 Accounts Payable: Beginning = 75,000 Ending = 100,000 Net sales = 1,150,000 Cost of Goods sold = 820,000,18-8,Example Operating Cycle,Inventory period Average inventory = (200,000+300,000)/2 = 250,000 Inventory turnover = 820,000 / 250,000 = 3.28 times Inventory period = 365
8、 / 3.28 = 111 days Receivables period Average receivables = (160,000+200,000)/2 = 180,000 Receivables turnover = 1,150,000 / 180,000 = 6.39 times Receivables period = 365 / 6.39 = 57 days Operating cycle = 111 + 57 = 168 days,18-9,Example Cash Cycle,Payables Period Average payables = (75,000+100,000
9、)/2 = 87,500 Payables turnover = 820,000 / 87,500 = 9.37 times Payables period = 365 / 9.37 = 39 days Cash Cycle = 168 39 = 129 days We have to finance our inventory for 129 days If we want to reduce our financing needs, we need to look carefully at our receivables and inventory periods they both se
10、em extensive. A comparison to industry averages would help solidify this assertion.,18-10,Short-Term Financial Policy,Size of investments in current assets Flexible (conservative) policy maintain a high ratio of current assets to sales Restrictive (aggressive) policy maintain a low ratio of current
11、assets to sales Financing of current assets Flexible (conservative) policy less short-term debt and more long-term debt Restrictive (aggressive) policy more short-term debt and less long-term debt,18-11,Carrying vs. Shortage Costs,Managing short-term assets involves a trade-off between carrying cost
12、s and shortage costs Carrying costs increase with increased levels of current assets, the costs to store and finance the assets Shortage costs decrease with increased levels of current assets Trading or order costs Costs related to safety reserves, i.e., lost sales and customers, and production stop
13、pages,18-12,Temporary vs. Permanent Assets,Temporary current assets Sales or required inventory build-up may be seasonal Additional current assets are needed during the “peak” time The level of current assets will decrease as sales occur Permanent current assets Firms generally need to carry a minim
14、um level of current assets at all times These assets are considered “permanent” because the level is constant, not because the assets arent sold,18-13,Figure 18.4,18-14,Choosing the Best Policy,Cash reserves High cash reserves mean that firms will be less likely to experience financial distress and
15、are better able to handle emergencies or take advantage of unexpected opportunities Cash and marketable securities earn a lower return and are zero NPV investments Maturity hedging Try to match financing maturities with asset maturities Finance temporary current assets with short-term debt Finance p
16、ermanent current assets and fixed assets with long-term debt and equity Interest Rates Short-term rates are normally lower than long-term rates, so it may be cheaper to finance with short-term debt Firms can get into trouble if rates increase quickly or if it begins to have difficulty making payments may not be able to refinance the short-term loans Have to consider all these factors and determine a compromise policy that fits the needs of the firm,18-15,Figure 18.6,18-16,Cash Budget,Forecast of
