Role of Treasurer, Cash Management, CCC Flashcards
What are the 7 roles of the treasurer
Cash management, liquidity management, raising finance, investments, risk management, management of treasury function and bank relations
Normal terms for payables and receivables
Normal term 30D, normal actual time 45-60D, if over 90D risk of bad debt
Principle issue in cash management
Before you sell, you must buy // you must pay expenses before revenues come in
3 options when insufficient cash
- Loan
- Lease
- Hire purchase
3 impactors on risk
Collateral, time and amount
Cash management definition and 6 items
“The effective planning, monitoring and management of liquid/near liquid resources”
Day2day requirements / receivables and payables / money in bank / short term investment / ST borrowing / FX
4 reasons to control cash
1st -> so you don’t go bust
- -unforeseen consequences
- -interest
- -opportunity cost
- if too focused on business, may forget cash, ledas to being unable to pay suppliers
Net Current Assets Formula
NCA = Current Assets (Inventory, Receivables, Cash and CEs) - Current Liabilities (Payables)
What is cash cycle, cash v profits
Purchases -> labour -> stock -> sale
Profit = sale - stock
Cash could be anywhere depending on when the money moves
Operating Cycle
- Formula
- What is tells you
- Goal
Operating Cycle = Inventory Days + Receivable Days - Payable Days
Average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods.
OC tells how much funding is required to keep business afloat. If it were 50D and you spend £1k/day then you need £50K
Goal is to keep as short as possible without damaging ability of co. to operate
Inventory Days
- Formula
- What is tells you
Avg inv / avg cost of sales * 365
(Cost of sales = opening inv + purchases - closing inv)
Average time to sell inventory / you want to hold for as short as possible
Receivable Days
- Formula
- What is tells you
Avg recs / sales on credit * 365
Time to collect receivables, collect as proptly as possible without annoying customers
Payable Days
- Formula
- What is tells you
avg payables / purchases on credit * 365
Time to pay suppliers / want to delay as much as possible
Cash conversion
- What is our objective
- What gets in the way
Objetive to to hold the minimum possible working capital // CA without damaging business
Hard if seasonal!
Good recs management 5 points
- Forecasting
- LT Funding and inventory decisions
- Bad debt risk lowers
- Liquidity increases
- BS Ratios improve
Bad recs management 5 points
- bad debts
- time
- legal fees
- float
- analyst/creditor attitudes and relationships
Current ratio
- Formula
- What is tells you
CA/CL
a liquidity ratio that measures whether or not a firm has enough resources to meet its short-term obligations.
A creditor would consider a high current ratio to be better than a low current ratio, because a high current ratio indicates that the company is more likely to pay the creditor back. Large current ratios are not always a good sign for investors. If the company’s current ratio is too high it may indicate that the company is not efficiently using its current assets or its short-term financing facilities.
Quick (acid test) ratio
- Formula
- What is tells you
(CA - Inventory)/CL
The acid-test ratio is a type of liquidity ratio which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.
A normal liquid ratio is considered to be 1:1. A company with a quick ratio of less than 1 cannot currently fully pay back its current liabilities.
Sarah Boyle of Treasury Essentials on Cash Conversion Cycles
Debt and equity are good for large one off fundraising items but on an ongoing basis to service debt, pay dividends and pay for labour, goods and services you need excellent mastery of the CCC
CCC is how long cash is lied up in working capital
