Role of Treasurer, Cash Management, CCC

Question 1

What are the 7 roles of the treasurer

Answer 1

Cash management, liquidity management, raising finance, investments, risk management, management of treasury function and bank relations

Question 2

Normal terms for payables and receivables

Answer 2

Normal term 30D, normal actual time 45-60D, if over 90D risk of bad debt

Question 3

Principle issue in cash management

Answer 3

Before you sell, you must buy // you must pay expenses before revenues come in

Question 4

3 options when insufficient cash

Answer 4

1. Loan
2. Lease
3. Hire purchase

Question 5

3 impactors on risk

Answer 5

Collateral, time and amount

Question 6

Cash management definition and 6 items

Answer 6

“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

Question 7

4 reasons to control cash

Answer 7

1st -> so you don’t go bust

2. -unforeseen consequences
3. -interest
4. -opportunity cost
5. if too focused on business, may forget cash, ledas to being unable to pay suppliers

Question 8

Net Current Assets Formula

Answer 8

NCA = Current Assets (Inventory, Receivables, Cash and CEs) - Current Liabilities (Payables)

Question 9

What is cash cycle, cash v profits

Answer 9

Purchases -> labour -> stock -> sale

Profit = sale - stock
Cash could be anywhere depending on when the money moves

Question 10

Operating Cycle

• Formula
• What is tells you
• Goal

Answer 10

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

Question 11

Inventory Days

• Formula
• What is tells you

Answer 11

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

Question 12

Receivable Days

• Formula
• What is tells you

Answer 12

Avg recs / sales on credit * 365

Time to collect receivables, collect as proptly as possible without annoying customers

Question 13

Payable Days

• Formula
• What is tells you

Answer 13

avg payables / purchases on credit * 365

Time to pay suppliers / want to delay as much as possible

Question 14

Cash conversion

• What is our objective
• What gets in the way

Answer 14

Objetive to to hold the minimum possible working capital // CA without damaging business

Hard if seasonal!

Question 15

Good recs management 5 points

Answer 15

1. Forecasting
2. LT Funding and inventory decisions
3. Bad debt risk lowers
4. Liquidity increases
5. BS Ratios improve

Question 16

Bad recs management 5 points

Answer 16

1. bad debts
2. time
3. legal fees
4. float
5. analyst/creditor attitudes and relationships

Question 17

Current ratio

• Formula
• What is tells you

Answer 17

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.

Question 18

Quick (acid test) ratio

• Formula
• What is tells you

Answer 18

(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.

Question 19

Sarah Boyle of Treasury Essentials on Cash Conversion Cycles

Answer 19

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