Managing Finance and Budgets Seminar 3. Seminar Three - Preparation Read Chapters 5 and 16 Review...
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Transcript of Managing Finance and Budgets Seminar 3. Seminar Three - Preparation Read Chapters 5 and 16 Review...
Seminar Three - Preparation
Read Chapters 5 and 16 Review key concepts:
Cash Flow Statement
Working Capital Exercises 5.7 (pages 170-1) and 16.3 (page 540)
Seminar 2 - Activities
During this seminar we will: Review the key concepts and ideas from the
lecture Review Chapter 5 of the set book Examine exercise 5.7 (pages 170-1) Review Chapter 16 of the set book Examine exercise 16.3 (page 540)
Some Starting Points
Explain the difference between Cash and Profit. Explain what is meant by the following:
Operating Activities Returns from Investment Servicing of Finances Taxation Capital Expenditure Equity Dividends Liquid Resources
The Cash-Flow Statement 1
Describe the structure of the Cash-Flow Statement.
State what is meant by the direct and indirect methods of deducing the Net Cash-Flow from the Operating Activities, explaining briefly the difference between them.
Equity dividends
paid
Financing
Capital expenditure
Returns from investment
and servicing of finance
Taxation
Management of liquid
resources
Operating activities
Cash balance
Diagrammatic representation of the cash flow statement
plus or minus
plus or minus
plus or minus
plus or minus
equals
plus or minus
plus or minus
Increase or decrease in cash over the period
Net cash flow from operating activities
Returns from investment and servicing of
finance
Taxation
Capital expenditure
Equity dividends paid
Management of liquid resource
Financing
Standard layout of the cash flow statement
The Cash-Flow Statement 2
For the Indirect method of calculating the net cash-flow, state the list of items, taken in order, that you would need to include in your calculations.
Exercise 5.7 p 169
plus
plus or minus
equals
plus or minus
plus or minus
Net cash flow from operating activities
Net operating profit
Depreciation expense
Increase (minus) or decrease (plus) in stock
Increase (minus) or decrease (plus) in debtors
Increase (plus) or decrease (minus) in creditors
The indirect method of deducing the net cash flow from the operating activities
Summarising…
Describe the relationship(s) between:The Balance SheetThe Cash-Flow StatementThe Profit & Loss Account
Balance sheet at the start of
the accounting period
Owner’s claim
Cash
Balance sheet at the end of
the accounting period
Owner’s claim
CashCash flow statement
Profit and loss account
The relationship between the balance sheet, the profit and loss account and the cash flow statement
Managing Working Capital
Explain what is meant by “working capital”, describing some of the elements which affect it.
Describe the ‘working capital’ cycle.
The nature and purpose of working capital
Major elements Major element
Stocks
Trade debtors
Cash (in hand and at bank)
Trade creditors
lessequals
Current liabilitiesWorking capital Current assets
The working capital cycle
Cash sales
Trade creditors
Trade debtors
Finished goods
Cash/bank overdraft
Work-in-progress
Raw materials
Managing Working Capital
Describe three financial ratios which can help a manager to monitor the flow of working capital, in relation to: stock levels, debtors and creditors.
Exercise 16.3
Managing Stocks
Describe the following methods of stock management: ABC system, economic order quantity, materials requirement planning, just-in-time method.
The management of stocks
Procedures and techniques
Forecasts of future demand
Financial ratios
Recording and reordering systems
Levels of control
Stock management models
Materials requirements planning (MRP) systems
Just-in-time (JIT) stock management
ABC method of analysing and controlling stock
Cumulative value of
stock items (%)
Volume of stock items held (%)
A B C
Stockholding and stock order costs
Annual costs
(£)
Stock level (units)E
Total costs
Holding costs
0
Ordering costs
Managing Working Capital
State and describe criteria which can be used to help decide which customers should receive credit.
The five Cs of credit
Capital
Capacity
Collateral
Conditions
Character
Which customers should receive credit?
%
Time
10
20
30
40
June
0
July August September
Actual
Budgeted
Comparison of actual and budgeted receipts over time for Example 16.3
The Operating Cash Cycle
Explain what is meant by the Operating Cash cycle, and discuss some methods a manager can use to control it.
Purchase of goods on credit
Payment for goods
Sale of goods on
credit
Cash received
from debtors
Stockholding period
Operating cash cycle
The operating cash cycle
equals
minus
Operating cash cycle
Average payment period for creditors
Average settlement period for debtors
plus
Average stockholding period
Calculating the operating cash cycle