Strategies Flashcards
List the Syllabus Points
- Cash flow management
- Working capital management
- Profitability Mangement
- Global Financial management
What is Cash Flow management
Cash flow management is about making sure that there is sufficient cash on hand to meet the bus. financial obligations at any point in time. Cash shortages often occur due to timing issues between receipt of cash inflows and obligations to make cash payments
Describe Strategies for Cash Flow mangement
- Factoring -> Selling accounts recievable to increase cash flow and gain an immediate cash injection at the expense of maximising revenue
- Discounts for Early payment - Provide incentive for early payment (speed up cash inflow)
- Distribution of Payments - Spreading payments thoughout the month / year –> Limits upfont expenditue + allows time for cash inflows -> Avoid cash shortages
What is Working Capital management?
Working Capital management is concerned with the bus’s short term financial commitments
What are Working Capital Strategies
- Leasing
- Sale + lease-back
- -> Bus doesn’t have to use cash (CA) to buy large pieces of equipment
- > Maximising CA and Minimising CL
What are Profitability strategies?
- > Increasing Revenue
- > Controlling expenses and costs
Cost Controls:
Fixed Costs –> Negotiate Discounts
Variable Costs –> Bulk buying to achieve economies of Scale
Cost Centres: Parts of the bus that use money
-> Control costs by allocating portion of total costs to particular parts of the business. Helps to identify where + how bus. is spending money.
Expense Minimisation:
- Outsourcing for cheaper labour / materials
- Sales and Lease back
- replacing labour with technology (Profit in L/T)
- Inventory Management (JIT)
Revenue Controls:
- Link to changes in marketing objectives
- -> Pricing strategies
- -> Promotion
- –> Differentiation
- –> Market research
List Global Financial Management Points
- Exchange Rates
- Interest Rates
- Methods of International Payment
- -> Letter of Credit
- -> Payment in Advanced
- -> clean Payment
- -> Bill of exchange
- Hedging
- Derivatives
What happeneds when the $A Depreciates
More expensive for Aust. Bus. to import from overseas
-> Aust. bus. become more competitive overseas (exporters)
What happeneds when the $A Appreciates
- Less expensive to import
- More competitive in Domestic market –> can sell for cheaper
Interest rates: What does low interest rate effect?
Low interest rate encourages borrowing from overseas (lower borrowing cost)
However, If exchange rate fluctuates, this may outweight interest rate benefit
List the Methods of Internrational payment
- Payment in Advanced
- Clean Payment
- Letter of Credit
- Bill of Exchange
What is Payment in Advanced?
- Importer pays for the goods first + expoerter recieves payment befoe shipping the goods
- RIsky for import
- Secure for Export
What is Clean payment
Exporter ships goods directly to importer along with an invoice requesting payment by a due date
- > Risky for exporter
- > Secure for importer (Increases liquidity-> allows cash flow to generate)
What is letter of Credit
Importers bank sends letter pomosing that the funds are avaliable + ready to be released as soon as Exporter agrees to importers terms & conditions
- Secure for Exporter
- Risky for Importer
What is Bill of Exchange
Legal contract drawn up by both parties, requires importer’s bank to guarantee funds and exporter to produce shipping documentation, when prerequisit is fulfilled the exchange takes place
- Risk is shared.
