FOUNDATION IN FINANCIAL MANAGEMENT (FFM)

Managing Cash Balance

Required return = Return on bond

                              Bond valuation

Gross redemption yields = 

                  (Interest on maturity + Par value at maturity)  

                                     Cost of bond 

Primary Bank.: It is  a high street bank, its operates the payment mechanism and it called Commercial Bank.

Secondary Bank: This banks deals mostly with wholesale business in the secondary money market.

Central Bank: This bank mostly important for monetary policy. The main instrument of monetary policy is the use of interest rate.

Financial Instrument:

Deposits, Bills, Certificate of Deposit (CD), Commercial Paper 

Treasurer

Function:

* Advising on capital structure

* Managing cash flows to minimise associated cost.

* Maintaining good banking relationship.

* Managing foreign currency transaction to avoid risk.

 
CASH SURPLUS

Where a forecast indicates an excess of equity and liabilities over assets, the business is expecting a cash surplus.

 

CLEAR FUND FORECAST

The purpose of  a cleared cash funds forecast is to asses whether the business will have enough cleared funds in its account to meet payment obligations, allowing for any overdraft facility that the business may have. Only cleared funds are available for payments because receipts or payment that have not yet been cleared (float) do not affect the available account balance.

It indicates whether it will have sufficient cash to pay.

WORKING CAPITAL:

CURRENT ASSET:
       
                  INVENTORY :                          
                         RAW MATERIALS                     XXX
                         WORK IN PROGRESS               XXX
                          FINISHED GOODS                    XXX
                          TOTAL                                        XXX
                    RECEIVABLE                                  XXX 
                                                                               XXX
LESS:
CURRENT LIABILITY :
                   PAYABLE                                           XXX
WORKING CAPITAL                                          XXX



WORKING CAPITAL MANAGEMENT SOME FORMULA

PAYABLE DAYS = AVG. TRADE PAYABLE X 365

                                 O/H PAID IN CREDIT

RECEIVABLE HOLDING DAYS = AVG. TRADE RECEIVABLE X 365

                                                                      CREDIT SALES

INVENTORY DAYS = AVG. WORK IN PROGRESS  X 365

                                       COST OF PRODUCTION

INVENTORY GOODS = INVENTORY   X 365

                                         COST OF SALES

RAW MATERIALS = RAW MATERIAL INVENTORY  X 365

                                     MATERIAL PURCHASE

CASH OPERATING CYCLE:

RECEIVABLE DAYS + INVENTORY DAYS - PAYABLE DAYS

HERE INVENTORY DAYS INCLUDING FINISHED GOODS, WORK IN PROGRESS AND RAW MATERIALS.

 SYMPTOMS OF OVER TRADING

* INCREASE REVENUE

* INCREASE INVENTORY

* INCREASE NON CURRENTS ASSET

* INCREASE PAYABLE AND LOAN FINANCE

* REDUCE LIQUIDITY RATIO