Treasure Management - Valuation, Inventory & Collection

Question 1

What are the 3 Basic Types of inventory?

Answer 1

– Raw material (RMI) ex: most important for the financial institution b/c they can sell more easily if a company defaults.
– Work-in-progress (WIP) ex: manufacturing factories of perishable goods or customized goods
– Finished goods (FGI) ex: would be for the end client

Question 2

Why do company hold inventory?

Answer 2

• Transaction motive ( You have clients ordering from you)
  – Precautionary motive (There may be a sudden and unexpected spurt in demand for finished goods at times.)
  – Speculative motive (Something that you get, because you believe that the value may go up -ex: gold )

Question 3

What do company need to account for re–order point?

Answer 3

– The time it takes to get your items selected
– The packing time
– The shipping time

Reorder point = daily usage rate × # of days to get
Daily usage rate = ( D/days of production)

Question 4

What are some attributes of credit?

Answer 4

– length of time
– security (collateral you provide the amount involved)
– amount involved
– resources transferred

Question 5

What is a trade credit?

Answer 5

– It’s your suppliers. So they don’t give you additional money. They give you time instead.

1. Can trigger larger purchase from customer.
2. Create goodwill and good supplier/customer relationship.
3. Strategic tool to increase revenue and gain market share.

Question 6

What are the Motives for a company to ask for credit?

Answer 6

– financial (there is a financial need)
– operating (That’s the one usually when you would go to trade credit)
– contracting (because you have to build something)

Question 7

What are The 5 C’s of credit standard?

Answer 7

– ***Character (reputation, trustworthiness, also is do they pay their bills)
– Capital (is the amount of money they have)
– Capacity (How much company can how much can the company make)
– Conditions (what conditions will they have)
– Collateral (Do they have a cushion, decent bond, or are they fully leverage with their loans?)

Question 8

What is a credit score?

Answer 8

A credit score is a numerical expression based on a statistical analysis of a person’s credit files

Question 9

What would be some elements of scoring model/life insurance?

Answer 9

age, gender, habits, health, married, where you live… woman pay less insurance cause they live longer, s they will be paying fr a longer period of time. INCOME IS NOT AN IMPORTANT FACTOR

Question 10

What are the benefits of scoring model?

Answer 10

speed, consistency, can be automated

Question 11

What are the challenges of scoring model?

Answer 11

Based on historical data, Accuracy of

information

Question 12

What are the 4 major components of credit policy?

Answer 12

1. Credit standard
2. Credit term
3. Credit limit
4. Collection procedures.

Question 13

What are some important criteria when changing credit term? From most important to least

Answer 13

1. Effect on dollar profit
2. Sales effect
3. Receivable effect
4. Return on investment effect.