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Session 3 - Solution

Req. 4
Req. 4 (continued)
Popular indicators of liquidity of a company:
Current Ratio:

Cash Conversion Cycle:

For example,
Req. 4 (continued)
What are some actions management can take to improve liquidity?
• Debtor management
• Prospection credibility, leave the bad customers for the competition
• Keep a close eye on customers: telephone, reminders,…
• Outsourcing to factor
• Cash management
• Customers pay with credit cards (Credit card company takes 2-3% as a fee)
• Optimal cash balance, avoid extra cash costs (for example: how many checks are
cleared and how many are not; integration local bank accounts)
• Short term financing
• Companies sell receivables to another business, called a factor: The factor pays a
discounted price and then collects full amount from customer
• Short term credit: peers or banks
• Sale/lease back
• Auctioning off
• Inventory/supply chain management
• Avoid excess levels of inventory (which come with a cost)
• Electronic data interchange systems, internet of things
• Payment agreements with supplier
• More drastic actions through restructuring which involves a major change in a company's
operations or finances, normally aimed at making the company more efficient. This can
involve downsizing (reducing the size of the workforce and disposing of non-core assets);
the creation of new profit centers from existing business areas; recapitalization (changing
the proportion of debt to equity); debt rescheduling (lengthening the maturity of debt and
improving the interest terms); etc. See some examples below.
Req. 4 (continued)
Poste Italiane aims to boost net profits (+13%) with
restructuring plan (2017-2022):
1. 30% Of the publicly owned shares (Ministry of Economy and Finance) are
sold to an investment bank (Casa Depositie Prestiti). 35% Of the shares were
already privatized and listed (free float).
2. Pay a dividend of €0.42 per share for 2017, and increase the pay-out by 5 per
cent per year until 2020.
3. The company hopes to stem falling revenues from its traditional mail service
by boosting deliveries of parcels from online retailers like Amazon. Capital
expenditure would total €2.8bn over the period to further adjusts to
“digitalisation and automation”.
4. It has recently signed an agreement with union workers to ensure parcels can be delivered in the afternoons and on weekends, and now
plans to deliver more than 100m parcels a year by 2022, compared to 35m last year.

As a reaction to these announcements, stock market reacted positively:

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