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Topics in Chapter
Basic Definitions
(More)
Definitions (Continued)
Industry
Current
1.75x
2.25x
Quick
0.83x
1.20x
58.76%
50.00%
16.67x
22.22x
DSO(365-day
year)
45.63
32.00
Inv. Turnover
4.82x
7.00x
F.A. Turnover
11.35x
12.00x
T.A. Turnover
2.08x
3.00x
Profit Margin
2.07%
3.50%
10.45%
21.00%
30.00
33.00
Debt/Assets
Turnover of Cash
ROE
Payables deferral
Inventory
Receivables Payables
Conversion =Conversion + Collection - Deferral
.
Period
Cycle
Period
Period
11
Use lockboxes.
Insist on wire transfers from
customers.
Synchronize inflows and outflows.
Use a remote disbursement
account.
(More)
12
Sales forecast.
Information on collections delay.
Forecast of purchases and payment
terms.
Forecast of cash expenses: wages,
taxes, utilities, and so on.
Initial cash on hand.
Target cash balance.
15
February
$67,651.95
$62,755.40
44,603.75
36,472.65
Wages
6,690.56
5,470.90
Rent
2,500.00
2,500.00
Total Payments
$53,794.31
$44,443.55
Net CF
$13,857.64
$18,311.85
Collections
Purchases
16
February
Cash at start if no
borrowing
$3,000.00
$16,857.64
13,857.64
18,311.85
Cumulative cash
$16,857.64
$35,169.49
1,500.00
1,500.00
$15,357.64
$33,669.49
Surplus
17
Should depreciation be
explicitly included in the cash
budget?
18
19
Inventory Management:
Categories of Inventory
Costs
26
28
30
32
34
Gross/Net Breakdown
= $55,560
= 13,890
= $41,670
36
37
365 days
Days
Discount
Taken
Period
365
= 0.0101
30 12.1667
= 0.1229 = 12.29%
Temp. NOWC
}
Perm NOWC
S-T
Loans
L-T Fin:
Stock &
Bonds,
Fixed Assets
Years
Lower dashed line, more aggressive.
41
Conservative Financing
Policy
$
Marketable Securities
Zero S-T
debt
Perm NOWC
L-T Fin:
Stock &
Bonds
Fixed Assets
Years
42
43
44