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 [phone]
• 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
(No Transcript)
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
(No Transcript)
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
(No Transcript)
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?