Working Capital and Debtor Management: Exercises Robert Alan Hill Download free books at Robert Alan Hill Working Capital And Strategic Debtor Management Exercises Download free eBooks at bookboon.com Working Capital And Strategic Debtor Management: Exercises 1st edition © 2013 Robert Alan Hill & bookboon.com ISBN 978-87-403-0588-3 Download free eBooks at bookboon.com Working Capital And Strategic Debtor Management: Exercises Contents Contents About the Author Part One: An Introduction An Overview 10 1.1 Introduction 10 1.2 Working Capital Management 13 1.3 Strategic Debtor Management 15 1.4 Exercise 1: The Terms of Sale 17 1.5 Summary and Conclusions 19 1.6 Selected References 20 Part Two: Working Capital Management 21 2 The Objectives and Structure of Working Capital Management 22 2.1 Introduction 22 2.2 Exercise 2.1: Financial Strategy: An Overview 22 2.3 Exercise 2.2: Financial Strategy and Working Capital 23 Fast-track your career Masters in Management Stand out from the crowd Designed for graduates with less than one year of full-time postgraduate work experience, London Business School’s Masters in Management will expand your thinking and provide you with the foundations for a successful career in business The programme is developed in consultation with recruiters to provide you with the key skills that top employers demand Through 11 months of full-time study, you will gain the business knowledge and capabilities to increase your career choices and stand out from the crowd London Business School Regent’s Park London NW1 4SA United Kingdom Tel +44 (0)20 7000 7573 Email mim@london.edu Applications are now open for entry in September 2011 For more information visit www.london.edu/mim/ email mim@london.edu or call +44 (0)20 7000 7573 www.london.edu/mim/ Download free eBooks at bookboon.com Click on the ad to read more Working Capital And Strategic Debtor Management: Exercises Contents 2.4 Summary and Conclusions 25 2.5 Selected References 26 Part Two: Working Capital Management 27 3 The Accounting Concept of Working Capital Management: A Critique 28 3.1 Introduction 28 3.2 Exercise 3.1: Working Capital Investment and Risk 29 3.3 Exercise 3.2: Working Capital Finance and Risk 30 3.4 Summary and Conclusions 34 3.5 Selected References 35 Part Two: Working Capital Management 36 4 The Working Capital Cycle and Operating Efficiency 37 4.1 Introduction 37 4.2 The Case Study: An Introduction 37 4.3 The Case Study: The Analysis 40 4.4 Summary and Conclusions 44 4.5 Selected References 45 Download free eBooks at bookboon.com Click on the ad to read more Working Capital And Strategic Debtor Management: Exercises Contents 46 Part Two: Working Capital Management 5 Real World Considerations and the Credit Related Funds System 47 5.1 Introduction 47 5.2 Exercise 5: Real World Solvency and Liquidity 47 5.3 Summary and Conclusions 50 5.4 Selected References 51 Part Three: Strategic Debtor Investment 52 6 The Effective Credit Price and Decision to Discount 53 6.1 Introduction 53 6.2 Exercise 6.1: Terms of Sale: A Theoretical Overview 54 6.3 Exercise 6.2: The Decision to Discount 58 6.4 Exercise 6.3: The Effective Price Framework 60 6.5 Exercise 6.4: “The Real” Cost of Trade Credit 63 6.6 Summary and Conclusions 66 your chance to change the world Here at Ericsson we have a deep rooted belief that the innovations we make on a daily basis can have a profound effect on making the world a better place for people, business and society Join us In Germany we are especially looking for graduates as Integration Engineers for • Radio Access and IP Networks • IMS and IPTV We are looking forward to getting your application! To apply and for all current job openings please visit our web page: www.ericsson.com/careers Download free eBooks at bookboon.com Click on the ad to read more Working Capital And Strategic Debtor Management: Exercises Contents Part Four: Summary and Conclusions 68 Review Exercises 69 7.1 Introduction 69 7.2 Exercise 7.1: Working Capital: A Review 70 7.3 Exercise 7.2: Cash Flow and the Budgeting Process 73 7.4 Exercise 7.3: Cash Flow and Accounting Profit 75 7.5 Exercise 7.4: The Preparation of a Cash Budget 76 7.6 Exercise 7.5: Terms of Sale: A Review 81 7.7 Summary and Conclusions 86 7.8 Selected References 87 I joined MITAS because I wanted real responsibili� I joined MITAS because I wanted real responsibili� Real work International Internationa al opportunities �ree wo work or placements �e Graduate Programme for Engineers and Geoscientists Maersk.com/Mitas www.discovermitas.com Ma Month 16 I was a construction Mo supervisor ina const I was the North Sea super advising and the No he helping foremen advis ssolve problems Real work he helping fo International Internationa al opportunities �ree wo work or placements ssolve pr Download free eBooks at bookboon.com �e G for Engine Click on the ad to read more Working Capital And Strategic Debtor Management: Exercises About the Author About the Author With an eclectic record of University teaching, research, publication, consultancy and curricula development, underpinned by running a successful business, Alan has been a member of national academic validation bodies and held senior external examinerships and lectureships at both undergraduate and postgraduate level in the UK and abroad With increasing demand for global e-learning, his attention is now focussed on the free provision of a financial textbook series, underpinned by a critique of contemporary capital market theory in volatile markets, published by bookboon.com To contact Alan, please visit Robert Alan Hill at www.linkedin.com Download free eBooks at bookboon.com Part One: An Introduction Download free eBooks at bookboon.com Working Capital And Strategic Debtor Management: Exercises An Overview An Overview 1.1 Introduction Irrespective of the research area (whether in the physical or social sciences) a logical procedure when constructing theoretical models has always been to make simplifying assumptions to improve our understanding of the real world As a convenient benchmark, all the texts in my bookboon series (referenced at the end of this Chapter) therefore begin with an idealised picture of investors (including management) who are rational and risk-averse, operating in reasonably efficient capital markets With a free flow of information and no barriers to trade, they can formally analyse one course of action in relation to another for the purpose of wealth maximisation with a degree of confidence In a sophisticated mixed economy, summarised in Figure 1.1 below, where the ownership of corporate assets is divorced from control (the agency principle), we can also define and model the normative goal of strategic financial management under conditions of certainty as: • The implementation of investment and financing decisions using net present value (NPV) maximisation techniques to generate money profits from all a firm’s projects in the form of retentions and distributions These should satisfy the firm’s existing owners (a multiplicity of shareholders) and prospective investors who define the capital market, thereby maximising share price Figure 1.1: The Mixed Market Economy Over their life, individual projects should eventually generate cash flows that exceed their overall cost of funds (i.e the project discount rate) to create wealth This positive net terminal value (NTV) is equivalent to a positive NPV, defined by a recurring theme of strategic financial management, namely the time value of money (i.e the value of money over time, irrespective of inflation) determined by borrowing and lending rates Download free eBooks at bookboon.com 10 Working Capital And Strategic Debtor Management: Exercises Real World Considerations and the Credit Related Funds System The CEO Mr Francis has convened a Board meeting to establish what is wrong with its working capital position The following “snapshot” data taken from the company accounts has been itemised as a basis for discussion PLOOLRQ /DVW