Handout Manajemen Keuangan

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Handout Manajemen Keuangan

• Cash Management

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Cash conversion cycle

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Cash doesnt earn a profit, so why hold it?

1. Transactions must have some cash to operate.
2. Precaution safety stock. Reduced by line of
   credit and marketable securities.
3. Compensating balances for loans and/or services
   provided.
4. Speculation to take advantage of bargains and
   to take discounts. Reduced by credit lines and
   marketable securities.

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What is the goal of cash management?

• To meet above objectives, especially to have cash
  for transactions, yet not have any excess cash.
• To minimize transactions balances in particular,
  and also needs for cash to meet other objectives.

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Ways to minimize cash holdings

• Use a lockbox.
• Insist on wire transfers from customers.
• Synchronize inflows and outflows.
• Use a remote disbursement account.
• Increase forecast accuracy to reduce need for
  safety stock of cash.
• Hold marketable securities (also reduces need for
  safety stock).
• Negotiate a line of credit (also reduces need for
  safety stock).

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Cash budgetThe primary cash management tool

• Purpose Forecasts cash inflows, outflows, and
  ending cash balances. Used to plan loans needed
  or funds available to invest.
• Timing Daily, weekly, or monthly, depending
  upon purpose of forecast. Monthly for annual
  planning, daily for actual cash management.

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Data Required for a Cash Budgeting

• 1 Sales forecast.
• 2. Information on collections delay.
• 3. Forecast of purchases and payment terms.
• 4. Forecast of cash expenses, taxes, etc.
• 5. Initial cash on hand.
• 6. Target cash balance.

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SKIs cash budgetFor January and February

• Net Cash Inflows
• Jan Feb
• Collections 67,651.95 62,755.40
• Purchases 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

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SKIs cash budget

Net Cash Inflows
Jan
Feb Cash at start if no borrowing
3,000.00 16,857.64 Net CF 13,857.64
18,311.85 Cumulative cash 16,857.64
35,169.49 Less target cash 1,500.00
1,500.00 Surplus 15,357.64 33,669.49
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Should depreciation be explicitly included in the
cash budget?

• No. Depreciation is a noncash charge. Only cash
  payments and receipts appear on cash budget.
• However, depreciation does affect taxes, which
  appear in the cash budget.

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What are some other potential cash inflows
besides collections?

• Proceeds from the sale of fixed assets.
• Proceeds from stock and bond sales.
• Interest earned.
• Court settlements.

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How could bad debts be worked into the cash
budget?

• Collections would be reduced by the amount of the
  bad debt losses.
• For example, if the firm had 3 bad debt losses,
  collections would total only 97 of sales.
• Lower collections would lead to higher borrowing
  requirements.

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Analyze SKIs forecasted cash budget

• Cash holdings will exceed the target balance for
  each month, except for October and November.
• Cash budget indicates the company is holding too
  much cash.
• SKI could improve its EVA by either investing
  cash in more productive assets, or by returning
  cash to its shareholders.

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Why might SKI want to maintain a relatively high
amount of cash?

• If sales turn out to be considerably less than
  expected, SKI could face a cash shortfall.
• A company may choose to hold large amounts of
  cash if it does not have much faith in its sales
  forecast, or if it is very conservative.
• The cash may be used, in part, to fund future
  investments.

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Float

• Float refers t funds that have been sent by the
  payer but are not yet usable funds to the payee.
• Float increases both the firms average
  collection period and its average payment period.
• The primary role of a cash manager on the
  collection side is to minimize this float
  wherever possible and to maximize it.

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Float

• Mail float the time delay between when payment
  is placed in the mail and when payment is
  received.
• Processing Float the time between receipt of the
  payment and its deposit into the firms account.
• Availability Float the time between deposit of
  the check and availability of the funds to the
  firm.
• Clearing Float the time between deposit of the
  check and presentation of the check back to the
  bank on which it is draw

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Float

• Field-Banking system collections are made either
  over the counter or at a collection office. The
  main collection problem is moving the funds from
  the local banks up to the main accounts at the
  companys primary bank.
• Mail-Based System The process center will
  receive the mail payments, open the envelopes,
  separate the check from the remittance
  information, prepare the check for deposit, and
  send the remittance information to the accounts
  receivable department application of payment.

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Types of Collection Systems

• Electronic System In a electronic bill
  presentment and payment (EBPP) system, customers
  are sent bills in an electronic format and then
  can pay their bills via electronic means.
• Lockbox System Customers mail payments to a post
  office box, which is emptied regularly by the
  firms bank. The bank processes each payment and
  deposits the payments in the firms account.

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Types of Collection Systems

• Electronic System In a electronic bill
  presentment and payment (EBPP) system, customers
  are sent bills in an electronic format and then
  can pay their bills via electronic means.
• Lockbox System Customers mail payments to a post
  office box, which is emptied regularly by the
  firms bank. The bank processes each payment and
  deposits the payments in the firms account.

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Lockbox System An Example

• Firm Y believes that use of a lockbox system can
  shorten its accounts receivable collection period
  by four days. The firms annual sales, all on
  credit, are 65 million, billed on a continuous
  basis. The firms can earn 9 on its short-term
  investments. The cost of the lockbox system is
  57,500 per year. Assume a 365-day year.

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Lockbox System An Example

• A. What amount of cash will be made available for
  other uses under the lockbox system?
• B. What net benefit (or cost) will the firm
  receive if it adopts the lockbox system? Should
  it adopt the proposed lockbox system?

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Lockbox System An Example

• Solution
• A. Cash available (65m/365) 4 712,329
• B. Interest Income from Reinvesting the cash
  available 712,329 (9/365) 64,109.61
• Lockbox costs 57,500
• Net Benefit 64,109.61 - 57,500 6,609.61