Topic 7

Question 1

T7
What is liquidity ?

Answer 1

The ability to pay payments when they are due

Question 2

T7
what is liquidity management

Answer 2

enough capital to cover short borrowing

Question 3

T7
how to manage liquidity

Answer 3

maximise income

mimimising not having enough cash

Question 4

T7
out flows for a business

Answer 4

wages and salaries
other operating cost
intrest and tax

Question 5

T7
stable business and Cyclical business?

and example

Answer 5

stable doesnt get affected by the economy
-e.g supermarket

cyclical does get affect by the ecnonomy good to bad
-e.g luxury products and umbrella makers

Question 6

Working capital management and price sensitivity

Answer 6

how the change in price affects demand

company having enough cash to pay bills

Question 7

T7
working capital formula

Answer 7

WC= CA - CL

ca = receivables , cash ,stock

cl = payables

Question 8

T7
What do treasure do to keep a healthy capital for longer ?

Answer 8

paying suppliers late as possible and getting paid sooner by customers

Question 9

T7
what do treasures do to get paid sooner by customers ?

Answer 9

they offer discounts to customers. (makes it cheaper)

they also decline discounts from suppliers to hold on to the cash longer .

Question 10

T7
disaster plan
in the case of a downturn in the market , what would the company avoid ?

Answer 10

Not using credit to cover costs as it expensive

BUT letting the bank know so it can help with emergency short term borrowing

Question 11

T7
what actives would they do to bring in cash?

Answer 11

-cost cutting
-reducing working capital (sending invoice to customers )
-selling assets or subsidiaries
-selling rights

Question 12

T7
what is a headroom?

Answer 12

having extra money always available

Question 13

T7
headroom formal

Answer 13

headroom = cash + used borrowing facilities

Question 14

T7
internal methods of creating liquidity example increasing credit taken?

Answer 14

• might lose goods , losing discounts

should stick to credit terms

implementation

Question 15

T7
internal methods of creating liquidity example reducing debtors ?

Answer 15

• selling debt to banks.
  -giving discounts to get paid quicker

Question 16

Generated cash

Answer 16

• selling debt to banks.
  -giving discounts to get paid quicker

Question 17

T7
internal methods of creating liquidity ?

Answer 17

reducing stock(not much demand not much material )
-working progress (not enough goods , effect production schedule )

Question 18

T7
internal methods of creating liquidity ?

Answer 18

selling hulling or land then leasing back
(might get a lower sale because its rushed )

-big price reductions to get rid of inventory -rarly used

Question 19

T7
benefit of cashflow forecast ?

Answer 19

• ensure liquidity at all times

-improve investement return
-borrowing only what’s needed

Question 20

T7
how to management cash surplus ?

Answer 20

• good use of saving or investment
  -short term borrowing without penalties

Question 21

T7
surplus management cash ?p2

Answer 21

using lads or lags (helps with transaction exposure)

paying credits early using discounts

Question 22

T7
what to consider when short term cash investments

Answer 22

• Flexibility
  -Accessibility
  -Time to maturity
  -Complexe
  -maximum/ mimunim
  -Return on investment
  -reputation
  -Realtionship bank