Chapter 2 Flashcards
CAPEX
CAPEX of all natures must be identified for each company in an itemized way
Intangible assets with no real value
non-recurring soft costs and goodwill
intangible assets with real but uncertain and/or unpredictable value:
brands
Tangible assets
Property and equipment
Long or medium term financial assets:
shares or bond portfolios
Accounting treatments
- land is non-depreciable
- intangible assets are non-deprecaible only amortizable
- CAPEX is reported on the b/s in order of increasing liquidity
Depreciation Methods
- Straight line or linear method
- accelerated cost recovery system
Financial Criteria of Investment decision
- Payback period
- Net Present Value
- Internal Rate of Return
The payback period
preferred when there is a predominant preference for the quickest possible return
The net present value
preferred when there is a predominant preference for the highest possible return
The internal rate of return:
preferred when there is a predominant preference for the highest possible return
Purpose of the criteria
CAPEX is always selected on the basis of the same financial criteria of all investment decisions, and allows for a rational, efficient assessment, comparison and selection of each investment
Short term needs and the operating cycle
- The working capital requirements
- Controlling the working capital requirements
Full WCR
Focusing on the balance of all operating assets and liabilities
= operating assets - operating liabilities
Reduced WCR
Focusing on only the balance of the key operating aggregates
= inventories + client receivables - supplier payables
Controlling WCR
Based on a double - internal and external - effort continuously
Internally
Minimizing the level of safety inventories, item by item, as a target and never exceeding the targeted level, (notion of lean management)
Externally
Improving and optimizing the terms and conditions of the trade relationship with clients and suppliers as much as possible, combination of intense bargaining and rigorous control
