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Unit 3

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Unit 3

  1. 1. Cash Receivables Inventory mgmt
  2. 2. <ul><li>Cash- is the ready currency to which all liquid assets can be reduced </li></ul><ul><li>Marketable securities- r short term interest earning money mkt instruments used by firms to obtain a return on temporarily idle funds </li></ul>CASH MGMT
  3. 3. Motives for holding cash <ul><li>Transaction motive </li></ul><ul><li>Precautionary motive </li></ul><ul><li>Speculative motive </li></ul><ul><li>Compensating motive </li></ul>
  4. 4. Objectives of cash mgmt <ul><li>Meeting payments schedule </li></ul><ul><li>Minimizing funds committed to cash balance </li></ul>
  5. 5. Factors determining cash needs <ul><li>Synchronization of cash flow </li></ul><ul><li>Short costs </li></ul><ul><li>Excess cash balance costs </li></ul><ul><li>Procurement & mgmt </li></ul><ul><li>Uncertainty </li></ul>
  6. 6. Cash budget <ul><li>A statement of inflow & outflow of cash i.e. used to estimate its short term requirements </li></ul><ul><li>Purposes </li></ul><ul><li>To coordinate timings of cash needs </li></ul><ul><li>To take benefit on a/c payable </li></ul><ul><li>To finance capital expansion </li></ul><ul><li>To smoothen the production schedule </li></ul>
  7. 7. Elements of cash budget <ul><li>Selection of time frame </li></ul><ul><li>Identifying operating & financial cash flow </li></ul><ul><li>Preparing statement </li></ul>
  8. 8. Cash mgmt: basic strategies <ul><li>Identifying cash cycle </li></ul><ul><li>Maximizing cash turnover </li></ul><ul><li>Minimum operating cash </li></ul><ul><li>Stretching accounts payable </li></ul><ul><li>Efficient inventory mgmt </li></ul><ul><li>Speeding collection of a/c rec </li></ul><ul><li>Combined cash mgmt strategies </li></ul>
  9. 9. <ul><li>Is also called as trade credit mgmt </li></ul><ul><li>Cost related r; </li></ul><ul><li>Collection cost </li></ul><ul><li>Capital cost </li></ul><ul><li>Delinquency cost </li></ul><ul><li>Default cost </li></ul>RECEIVABLE MGMT
  10. 10. Credit policy <ul><li>Includes </li></ul><ul><li>Credit standards </li></ul><ul><li>Credit analysis </li></ul>
  11. 11. Credit stds <ul><li>Tight/ restrictive std </li></ul><ul><li>Liberal/ non restrictive std </li></ul><ul><li>Trade-off with respect to credit std </li></ul><ul><li>Collection cost </li></ul><ul><li>Investment in rec </li></ul><ul><li>Bad debt expenses </li></ul><ul><li>Sales volume </li></ul>
  12. 12. Credit analysis <ul><li>Obtaining credit information </li></ul><ul><li>Internal source </li></ul><ul><li>External source </li></ul><ul><li>Analyses of credit information </li></ul><ul><li>Quantitative </li></ul><ul><li>Qualitative </li></ul>
  13. 13. Credit terms <ul><li>it specifies terms & conditions under which goods r sold </li></ul><ul><li>It includes; </li></ul><ul><li>Credit period </li></ul><ul><li>Cash discount </li></ul><ul><li>Cash discount period </li></ul>
  14. 14. Collection policies <ul><li>Procedure followed to collect a/c rec </li></ul><ul><li>Includes; </li></ul><ul><li>Degree of collection effort </li></ul><ul><li>Strict or liberal </li></ul><ul><li>Type of collection effort </li></ul><ul><li>letters, reminders, telephone calls etc </li></ul>
  15. 15. Inventory mgmt <ul><li>Objectives </li></ul><ul><li>To minimize investments in inventory </li></ul><ul><li>To meet demand for the product by efficiently organizing production & sales operations </li></ul>
  16. 16. Costs of holding inventory <ul><li>Ordering cost </li></ul><ul><li>Carrying cost </li></ul>
  17. 17. Benefits of holding inventory <ul><li>In purchasing </li></ul><ul><li>In production </li></ul><ul><li>In wip </li></ul><ul><li>In sales </li></ul>