《ACCA考试之财务管理 FINANCIAL MANAGEMENT》课件PPT 5 Managing working capital.ppt

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1、PaperF9Financial Management Accounting School1ManagingworkingcapitalChapter52TopiclistManaginginventoriesManagingaccountsreceivableManagingaccountspayable3ExamguideQuestionsinthisareaarelikelytobeamixtureofcalculationsanddiscussionasinPilot Paperquestion3whichinvolvesatypicalevaluationofachangeincre

2、ditpolicyandanexplanationofthekeyareaofaccountsreceivablemanagement.41ManaginginventoryFastforwardAneconomicorderquantitycanbecalculatedasaguidetominimizingcostsinmanaginginventorylevel.Bulksdiscountscanhowevermeanthatadifferentorderquantityminimizinginventorycosts.51ManaginginventoryThescientificco

3、ntrolofinventoriesmaybeanalysedintothreeparts:Theeconomic order quantity(EOQ)modelcanbeusedtodecidetheoptimumordersizeforinventorieswhichwillminimisingthecostsoforderinginventoriesplusinventoryholdingcosts.Ifdiscounts for bulk purchasesareavailable,itmaybecheapertobuyinventoriesinlargeordersizessoas

4、toobtainthediscountsUncertaintyindemandforinventoriesand/orthesupplyleadtimemayleadacompanytodecidetoholdbuffer inventoriesinordertoreduceoreliminatetheriskofstock-out(runningoutofinventory).6Economicorderquantity(EOQ)modelPatternofstocklevelsstockOrderquantityBufferstock0time7InventorycostsHoldingc

5、ostsThecostofcapitalWarehousingandhandlingcostsDeteriorationObsolescenceInsurancePilferageProcuringcostsOrderingcostsDeliverycostsShortagecostsContributionfromlostsalesExtracostofemergencyinventoryCostoflostproductionandsalesinainventoryCostofinventoryRelevantparticularlywhencalculatingdiscounts81.1

6、ThebasicEOQformulaKeytermTheeconomicorderquantity(EOQ)istheoptimalorderingquantityforanitemofinventorywhichwillminimizecosts(orderset-up+holdingcosts).LetD=usageinunitforoneperiod(thedemand)C0=costofplacingoneorderCH=holdingcostperunitofinventoryforoneperiodQ=re-orderquantity9Economicorderquantity(E

7、OQ)modelPatternofstocklevelsstockOrderquantity0time101.1ThebasicEOQformulaAssumethatdemandisconstant,theleadtimeisconstantorzeroandpurchasecostsperunitareconstant(i.e.nobulkdiscount)Theorderingcostsperorderareassumedtobeconstantregardlessofthesizesoforder.Thetotalorderingcostforaperiodissimplythecos

8、tperordertimesthenumberofordersforthatperiod.111.1ThebasicEOQformulaAssumethatdemandisconstant,theleadtimeisconstantorzeroandpurchasecostsperunitareconstant(i.e.nobulkdiscountandbufferinventory)Ifusageofaninventoryitemisatasteadyrateoveraperiodoftimeandthereisnosafetystock,andinventory(inunits)canbe

9、expressedas121.1ThebasicEOQformulaAssumethatdemandisconstant,theleadtimeisconstantorzeroandpurchasecostsperunitareconstant(i.e.nobulkdiscountandbufferinventory)holdingcostperunitofinventoryCH,arealsoassumedtobeconstantperunitoftheinventory,perperiodoftime.Thusthetotalholdingcostforperiodistheholding

10、costperunittimestheaveragenumberofunitsofinventoryfortheperiod.131.1ThebasicEOQformulaThetotalcostsofinventoryOptimal order quantity theoptimalquantityofaninventoryitemtoorderatanyonetimeisthatquantity,thatminimizestotalinventorycostsoverourplanningperiod.141.1ThebasicEOQformulaTheoptimalnumbersofod

11、ersforaperiodThetotalcostsofinventoryinrelationtoEOQ151.1ThebasicEOQformulaTheinventorycycleThefundstiedupinEOQ161.3Uncertaintiesindemandandleadtimes:are-orderlevelsystemFastforwardUncertaintiesindemandandleadtimestakentofulfillordersmeanthatinventorywillbeorderedonceitreachesare-orderlevelRe-order

12、level=maximumusage maximumleadtime171.3Uncertaintiesindemandandleadtimes:are-orderlevelsystemKeytermsLead-timeisthetimebetweenplacinganorderanddeliveryofthegoodsOrder pointthequantitytowhichinventorymustfallinordertosignalthatanordermustbeplacedtoreplenishanitem.181.3Uncertaintiesindemandandleadtime

13、s:are-orderlevelsystemThere-orderlevelisthemeasureofinventoryatwhichareplenishmentordershouldbemade.Ifanorderisreplacedtoolate,theorganizationmayrunoutofinventory,astock-out,resultinginalossofsalesand/oralossorproduction.Ifanorderisplacedtoosoon,theorganizationwillholdtoomuchinventory,andinventoryho

14、ldingcostswillbeexcessive.Useofare-orderlevelbuildsinameasureofsafetyinventoryandminimizestheriskoftheorganizationrunningoutofinventory.Thisisparticularlyimportantwhenthevolumeofdemandorthesupplyleadtimeareuncertain.191.3Uncertaintiesindemandandleadtimes:are-orderlevelsystemTheaverageannualcostofsuc

15、hasafetyinventorywouldbe:quantityofsafetyinventory(inunit)Inventoryholdingcostperunitperannual201.4MaximumandminimuminventorylevelsKeytermsMaximum inventory level=re-orderlevel+re-orderquantity-(minimumusage minimumleadtime)Themaximumlevelactsasawarningsignaltomanagementthatinventoriesarereachingapo

16、tentiallywastefullevel.Minimum inventory levelorbuffer safety inventory=re-orderlevel-(averageusage averageleadtime)Theminimumlevelactsasawarningsignaltomanagementthatinventoriesareapproachingadangerouslylowlevelandthatstock-outarepossible.211.4MaximumandminimuminventorylevelsKeytermThisformulaassum

17、esthatinventorylevelsfluctuateevenlybetweentheminimum(orsafety)inventorylevelandthehighestpossibleinventorylevel(theamountofinventoryimmediatelyafteranorderisreceived,safetyinventoryandre-orderquantity).Thisapproachassumesthatabusinesswantstominimizetheriskofstock-outatallcost.Inthemodernmanufacturi

18、ngenvironmentstock-outcanhaveadisastrouseffectontheproductionprocess.221.4MaximumandminimuminventorylevelsForeachpossiblere-orderlevel,andthereforeeachpossiblelevelofbufferinventory,calculate:thecostsholdingbufferinventoryperannumThecostsofstock-outCostofonestock-out expectednumberofstock-outsperord

19、er numberofordersperyearTheexpectednumberofstock-outsperorderreflectsthevariouslevelbywhichdemandduringtheleadtimecouldexceedthere-orderlevel231.6TheeffectofdiscountsDiscountmaybeofferedfororderinginlargequantity.Todecidemathematicallywhetheritwouldbeworthwhiletakingadiscountandorderinglargerquantit

20、y,itisnecessarytominimize:Total purchasing cost+ordering costs+inventory holding costsThe total cost will be minimized:At the pre-discount EOQ level so that a discount is not worthwhile,orAt the minimum order size necessary to earn the discount241.8Justintime(JIT)procurementKeytermsJIT procurement i

21、satermwhichdescribesapolicyofobtaininggoodsfromsuppliersatthelatestpossibletime(i.e.whentheyareneeded)andsoavoidingtheneedtocarryanymaterialsorcomponentsinventory.JITanapproachtoinventorymanagementandcontrolinwhichinventoriesareacquiredandinsertedinproductionattheexacttimestheyareneeded.251.8Justint

22、ime(JIT)procurementIntroducingJITmightbringthefollowingpotentialbenefit:ReductionininventorycostsReducedmanufacturingleadtimeImprovedlaborproductivityReducedscrap/rework/warrantycostsReducedinventorylevelsmeanthatalowerlevelofinvestmentinworkingcapitalwillberequired.261.8Justintime(JIT)procurementJI

23、Tattemptstoeliminatewasteateverystageofthemanufacturingprocess,notablybytheeliminationof:WIP,byreducingbatchsizes(oftenone)Rawmaterialsstock,bythesuppliersdeliveringdirecttotheshop-floorjustintimeforuseScrapandrework,byanemphasisontotalqualitycontrolofthedesign,oftheprocess,andofthematerialsFinished

24、goodsstock,byreducinglead-timessothatallproductsaremadetoorderMaterialhandingcosts,byre-designoftheshop-floorsothatgoodsmovedirectlybetweenadjacentworkcenters.272ManagingaccountsreceivablesKeytermsA/Rarisefromtradecredit,anointerestloantocustomerThetermsofcreditaffectthelevelofaccountsreceivable.Tra

25、decreditisamarketingtooltoattractbusiness.Thusneedtokeeptermscompetitive.Amarginalanalysisdetermineswhethertheexpectedbenefitsfromthechangeinthetermsofcredit(increasedsalesandprofits),outweightheincreasedcosts(financingfloattime,baddebtordiscountprice)282.1TotalcreditFastforwardOfferingcredithasacos

26、t:thevalueoftheinterestchargedonoverdrafttofundtheperiodofcredit,ortheinterestlostonthecashnotreceivedanddepositedinthebank.Anincreaseinprofitfromextrasalesresultingfromofferingcreditcouldoffsetthiscost.Findingatotallevelofcreditwhichcanbeofferedisamatteroffindingtheleastcostlybalancebetweenenticing

27、,whoseuseofcreditentailsconsiderablecosts,andrefusingopportunitiesforprofitablesales.292.2EffectonprofitofextendingcreditThemaincostofofferingcreditistheinterestexpense.TheleveloftotalcreditcanthenhaveasignificanteffectonprofitabilityIfcreditconsiderationsareincludedinpricingcalculations,extendingcr

28、editcanincreaseprofitability.Ifofferingcreditgeneratesextrasales,thenthoseextrasaleswillhaveadditionalrepercussionson:Theamountofinventorymaintainedinthewarehouse,toensurethattheextrademandmustbesatisfied.Theamountofmoneythecompanyowestoitsaccountpayable302.3CreditcontrolpolicyTheadministrativecosts

29、ofdebtcollectionTheprocedureforcontrollingcredittoindividualcustomersandfordebtcollectionTheamountofextracapitalrequiredtofinanceanextensionoftotalcreditThecostoftheadditionalfinancerequiredforanyincreaseinthevolumeofaccountreceivable(orthesavingfromareductioninaccountingreceivable)-thiscostmightbeb

30、ankoverdraftinterest,orthecostoflongtermfunds.AnysavingoradditionalexpenseinoperatingthecreditpolicyThewayinwhichthecreditpolicycouldbeimplementedTheeffectofeasingcredit.312.4AssentingcreditworthinessFastforwardInmanagingaccountreceivable,thecreditworthinessofcustomersneedtobeassessed.Theriskandcost

31、sofcustomerdefaultingwillneedtobebalancedagainsttheprofitabilityofthebusinessprovidedbythecustomer.Creditcontrolinvolvestheinitialinvestigationofpotentialcreditcustomersandthecontinuingcontrolofoutstandingaccounts.322.5ManagingaccountsreceivableFastforwarduRegularmonitoringofaccountsreceivableisvery

32、important.Individualaccountsreceivablecanbeassessedusingacustomerhistoryanalysisandacreditraringsystem.uTheoveralllevelofaccountreceivablecanbemonitoredusinganagedA/Rlistingandcreditutilizationreport.Aswellasreportsonthelevelofbaddebts.AccountreceivablepaymentrecordsmustbemonitoredcontinuallyCreditm

33、onitoringbyCreditratingsAcustomerspaymentrecordandtheaccountsreceivableagedanalysisshouldbeexaminedregularly.332.5ManagingaccountsreceivableExtensionofcreditTheextrasalesthatamoregenerouscreditpolicywouldstimulateTheprofitabilityofextrasalesTheextralengthoftheaveragedebtcollectionperiodTherequiredra

34、tesofreturnoninvestmentinadditionalA/R34CreditPolicyChangesGeneralprocedureEstimatethechangeinprofitEstimatethecostsofadditionalinvestmentinaccountsreceivableandinventoryEstimatethecostsofthediscount(ifachangeincashdiscountisenacted)Comparetheincrementalrevenueswiththeincrementalcosts.352.5Managinga

35、ccountsreceivableExample:achangeincreditpolicy1.Profitabilityofadditionalsales=contributionmargin*additionalsales2.Additionalbad-debtlosses:=additionalsales*baddebtpercentage3.Additionalreceivables=additionalsales/newreceivableturnover4.Requiredbefore-taxreturnonadditionalinvestment=opportunitycost*

36、additionalreceivables362.5ManagingaccountsreceivableExample:achangeincreditpolicy5.Additionalbad-debtlossesplusadditionalrequiredreturn:=(step2+step4)6.Incrementalprofitability:=step1-step6372.6CollectingamountowingFastforwarduThebenefitofactiontocollectdebtsmustbegreaterthanthecostsincurred.Baddebt

37、 lossSaturationpointCollectionexpenditure382.6CollectingamountowingCollectingdebtsisatwo-stageprocessHavingagreedcredittermswithacustomer,abusinessshouldissueaninvoiceandexpecttoreceivepaymentwhenitisdue.Ifpaymentbecomeoverdue,theyshouldbechased.InstitutingreminderorfinaldemandsChasingpaymentbytelep

38、honemakingapersonalapproachNotifyingdebtcollectionsectionHandingoverdebtcollectiontospecialistdebtcollectionsectionInstitutinglegalactiontorecoverthedebtHiringexternaldebtcollectionagencytorecoverdebt392.7EarlysettlementdiscountsFastforwarduEarlysettlementdiscountsmaybeemployedtoshortenaveragecredit

39、period,andtoreducetheinvestmentinA/Randthereforeinterestcosts.Thebenefitininterestcostsavedshouldexceedthecostofthediscountsallowed.uCashdiscountperiod-theperiodoftimeduringwhichacashdiscountcanbetakenforearlypayment.uCashdiscount-apercentreductioninsalesorpurchasepriceallowedforearlypaymentofinvoic

40、es.Itisanincentiveforcreditcustomerstopayinvoicesintimelyfashion.Keyterms402.8Example:settlementdiscountsDecisionsteps1.LevelofA/Rbeforecashdiscountchange=(annualcreditsales)/(oldreceivableturnover)2.NewLevelofA/Rassociatedwithcashdiscountchange=(annualcreditsales)/(newreceivableturnover)3.Reduction

41、ofinvestmentinaccountsreceivable=oldA/RlevelnewA/Rlevel4.before-taxcostofcashdiscountchange=cashdiscount*percentagetakingdiscount*annualcreditsales5.before-taxopportunitysavingsonreductioninreceivable:=opportunitycost*reductioninA/R6.Incrementalprofitability:step5-stept4412.8Example:settlementdiscou

42、ntsThepercentagecostofanearlysettlementdiscounttothecompanygivingitcanbeestimatedbytheformula:Whered=thediscountofferedt=thereductioninthepaymentperiodindaysthatisnecessarytoobtaintheearlypaymentdiscount42Annualpercentagerate(APR)KeytermNominal(stated)interestrateisarateofinterestquotedforayearthath

43、asnotbeenadjustedforfrequencyofcompounding.Ifinterestiscompoundedmorethanonceayear,theeffectiveinterestrateratewillbehigherthanthenominal.TherealrateofinterestisreferredtoastheannualorannualizedpercentagerateorAPR.43Annualpercentagerate(APR)EffectiveannualinterestrateTheactualrateofinterestearned(pa

44、id)afteradjustingthenominalrateforfactorssuchasthenumberofcompoundingperiodsperyear.Theeffectiveannualinterestrateistheinterestratecompoundedannuallythatprovidesthesameannualinterestasthenominalratedoeswhencompoundedmtimesperyear.Thereareusuallytworatesquotedbyfinancialinstitutions:NominalrateAnnual

45、percentagerate(APR),ortheeffectiverate44Annualpercentagerate(APR)TherelationshipsbetweennominalannualinterestrateandEffectiveannualinterestrate45Annualpercentagerate(APR)ui=thenominalinterestrateur=theeffectiveannualinterestrateum=thenumberofannualcompoundperiodsperyearun=thenumberofyears462.8Exampl

46、e:settlementdiscountsCostofmisseddiscount=1(1-d)n-1Costofmisseddiscount=(F/D)n-1D=percentagediscountofferedforearlysettlementN=365dividedbythenumberofdaysbetweenthetwopaymentdatesF=InvoicefacevalueD=dollardiscountofferedforearlypayment472.9BaddebtriskThehigherturnoverresultingfromeasiercredittermssh

47、ouldbesufficientlyprofitabletoexceedthecostof:Baddebt,andTheadditionalinvestmentnecessarytoachievethehighersalesExample:receivablemanagementCreditinsurance482.10FactoringFastforwarduSomefirmsusefactoringandinvoice discountingtohelpshorttermliquidityorreduceadministrationcosts.uInsurance,particularly

48、ofoverseasdebts,canalsohelpreducetheriskofbaddebts.uFactoringisanarrangementtohavedebtscollectedbyafactorfirm,whichadvancesaproportionofthemoneyitisduetocollectuFactoring-Thesellingofreceivablestoafinancialinstitution,thefactor,usuallywithoutrecourseKeyterm492.10FactoringThemainaspectsoffactoringinc

49、luding:Administration of sales ledger-clientsinvoicing,salesaccountinganddebtcollectionserviceCredit protectiontoinsurethedebtofaclientagainstbaddebtrisk(non-recourseservice)Providing financemakingpaymenttotheclientinadvanceofcollectingthedebts(factorfinance).502.10FactoringTheprocessoffactoringClie

50、ntdebtorsfactor1goods2sellsdebts4paythefactor3payupto85%ofbookvalueofinvoiceimmediately5paysbalanceoncollection512.10FactoringBenefitoffactoring1.thebusinesscanpayitssupplierspromptly,andsobeabletotakeadvantageofanyearlypaymentdiscountsthatareavailable.2.Optimuminventorylevelscanbemaintained,because