CURRENT ASSETS MANAGEMENT: VALUE BASED WORKING CAPITAL DECISIONS - PowerPoint PPT Presentation

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CURRENT ASSETS MANAGEMENT: VALUE BASED WORKING CAPITAL DECISIONS

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Title: CURRENT ASSETS MANAGEMENT: VALUE BASED WORKING CAPITAL DECISIONS


1
CURRENT ASSETS MANAGEMENT VALUE BASED WORKING
CAPITAL DECISIONS
2
CURRENT ASSETS MANAGEMENT VALUE BASED WORKING
CAPITAL DECISIONS
  • E-mail GRZEGORZ.MICHALSKI_at_UE.WROC.PL
  • www HTTP//MICHALSKIG.UE.WROC.PL/
  • Mobile 48503452860
  • 5 lectures 1 exam (test)
  • Next lecture 14th October.
  • J.E. Graham, Firm Value and Optimal Levels of
    Liquidity, Routledge 2001.
  • T. S. Maness, J. T. Zietlow, Short-Term Financial
    Management, S-W Learning 2005.

3
Basic financial aim of the firm
  • Firm value maximization
  • Where FCFn free cash flows,
  • CC cost of capital financing the firm (WACC)
  • n period in which FCFn will be generated

4
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5
FCF how to calculate?
  • CC cost of capital (cost of money), how to
    value?

6
Cash cycle Operating Cycle
7
(No Transcript)
8
Cash cycle Operating Cycle
  • Operating cycle - the time period from commitment
    of cash for purchases until the collection of
    receivables resulting from the sale of
    goods/services.
  • Operating cycle Inventory period A/cs
    receivable period
  • Cash cycle - the time period from the actual
    outlay of cash for purchases until the collection
    of receivables.
  • Cash cycle Operating cycle - A/cs payable period

9
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10
Example Cash cycle Operating Cycle
  • The following information has been provided
  • CR 720
  • Inventory 60
  • Accounts receivable 80
  • Accounts payable 50
  • Calculate OKZAP (IP), DSO, OOSZwD, CO, CKG.
  • If we know that operating cash will be held on
    the level of 2 days sale, how much money will be
    tied in NWC (Net Working Capital)?

11
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12
How changes in curent assets influence value?
  • CS Inventory period 35 days, Accounts
    receivable period 26 days, accounts payable
    period 20 days, Cash Revenues 1440ooo, T19,
    calculate
  • Assets, if FA 800
  • Capital Involved
  • FCF0, FCF1-n, FCFn
  • IRR
  • Cost of Capital if D/(DE) 40, kd 10 ke
    ? kRF7, km17,
  • NPV
  • What will change if IP (OKZAP) is shorter?
    Longer?
  • What will change if ARP (DSO) is shorter? Longer?
  • What will change if APP (OOSZwD) is shorter?
    Longer?
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