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Lecture Essentials of corporate finance (2/e) – Chapter 16: Short-term financial planning

After completing this unit, you should be able to: Be able to compute the operating and cash cycles and understand why they are important, understand the different types of short-term financial policy, understand the essentials of short-term financial planning. | Short-term financial planning Chapter 16 Key concepts and skills Be able to compute the operating and cash cycles and understand why they are important Understand the different types of short-term financial policy Understand the essentials of short-term financial planning 16- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh 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 16- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Net working capital (NWC) review NWC + Fixed assets = L/T debt + Equity NWC = (Cash + Other current assets) – Current liabilities Cash = L/T debt + Equity + Current liabilities – Current assets other than cash – Fixed assets 16- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh L/T debt = Long-term debt Sources and uses of cash 16- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Notice that our two lists are exact opposites. For example, floating a long-term bond issue increases cash (at least until the money is spent). Paying off a long-term bond issue decreases cash. Activities that increase cash are called sources of cash. Activities that decrease cash are called uses of cash. The operating cycle The time it takes to receive inventory, sell it and collect on the receivables generated from the sale Operating cycle = inventory period + accounts receivable period Inventory period = the time inventory sits on the shelf Accounts . | Short-term financial planning Chapter 16 Key concepts and skills Be able to compute the operating and cash cycles and understand why they are important Understand the different types of short-term financial policy Understand the essentials of short-term financial planning 16- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh 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 16- Copyright © 2011 McGraw-Hill Australia Pty Ltd PPTs t/a Essentials of Corporate Finance 2e by Ross et al. Slides prepared by David E. Allen and Abhay K. Singh Net working capital (NWC) review NWC + Fixed assets = L/T debt + Equity NWC = (Cash + Other current assets) – Current liabilities Cash = L/T debt + Equity + Current liabilities –