Topic 7 Flashcards
T7
What is liquidity ?
The ability to pay payments when they are due
T7
what is liquidity management
enough capital to cover short borrowing
T7
how to manage liquidity
maximise income
mimimising not having enough cash
T7
out flows for a business
wages and salaries
other operating cost
intrest and tax
T7
stable business and Cyclical business?
and example
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
Working capital management and price sensitivity
how the change in price affects demand
company having enough cash to pay bills
T7
working capital formula
WC= CA - CL
ca = receivables , cash ,stock
cl = payables
T7
What do treasure do to keep a healthy capital for longer ?
paying suppliers late as possible and getting paid sooner by customers
T7
what do treasures do to get paid sooner by customers ?
they offer discounts to customers. (makes it cheaper)
they also decline discounts from suppliers to hold on to the cash longer .
T7
disaster plan
in the case of a downturn in the market , what would the company avoid ?
Not using credit to cover costs as it expensive
BUT letting the bank know so it can help with emergency short term borrowing
T7
what actives would they do to bring in cash?
-cost cutting
-reducing working capital (sending invoice to customers )
-selling assets or subsidiaries
-selling rights
T7
what is a headroom?
having extra money always available
T7
headroom formal
headroom = cash + used borrowing facilities
T7
internal methods of creating liquidity example increasing credit taken?
- might lose goods , losing discounts
should stick to credit terms
implementation
T7
internal methods of creating liquidity example reducing debtors ?
- selling debt to banks.
-giving discounts to get paid quicker
Generated cash
- selling debt to banks.
-giving discounts to get paid quicker
T7
internal methods of creating liquidity ?
reducing stock(not much demand not much material )
-working progress (not enough goods , effect production schedule )
T7
internal methods of creating liquidity ?
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
T7
benefit of cashflow forecast ?
- ensure liquidity at all times
-improve investement return
-borrowing only what’s needed
T7
how to management cash surplus ?
- good use of saving or investment
-short term borrowing without penalties
T7
surplus management cash ?p2
using lads or lags (helps with transaction exposure)
paying credits early using discounts
T7
what to consider when short term cash investments
- Flexibility
-Accessibility
-Time to maturity
-Complexe
-maximum/ mimunim
-Return on investment
-reputation
-Realtionship bank
