Podcast
Questions and Answers
What is a primary strategy employed by McDonald's to manage fixed and variable costs effectively?
What is a primary strategy employed by McDonald's to manage fixed and variable costs effectively?
- Increasing employee salaries
- Managing council rates and food packaging costs (correct)
- Reducing marketing expenses
- Outsourcing food suppliers
Which method is considered low risk for exporters when conducting international transactions?
Which method is considered low risk for exporters when conducting international transactions?
- Payment in Advance (correct)
- Clean Payment
- Letter of Credit
- Bills of Exchange
How does McDonald's increase stable revenue streams in its operations?
How does McDonald's increase stable revenue streams in its operations?
- By franchising 95% of its stores (correct)
- Through the shift to owning all its stores
- Increasing the number of corporate-owned locations
- By reducing the number of franchises
What is a key method Qantas uses to manage risks associated with international transactions?
What is a key method Qantas uses to manage risks associated with international transactions?
What is a primary effect of fluctuating exchange rates on international businesses?
What is a primary effect of fluctuating exchange rates on international businesses?
What is a primary benefit of using rolling cash budgets in cash flow management?
What is a primary benefit of using rolling cash budgets in cash flow management?
Which strategy can help avoid cash shortages from large payments?
Which strategy can help avoid cash shortages from large payments?
How can businesses speed up cash inflow regarding customer payments?
How can businesses speed up cash inflow regarding customer payments?
Which of the following statements about accounts receivable is true for effective cash flow management?
Which of the following statements about accounts receivable is true for effective cash flow management?
What practice helps businesses manage their current liabilities effectively?
What practice helps businesses manage their current liabilities effectively?
Which inventory management method does McDonald's use to ensure cash availability?
Which inventory management method does McDonald's use to ensure cash availability?
How do leasing and sale-and-leaseback strategies improve working capital?
How do leasing and sale-and-leaseback strategies improve working capital?
Fixed costs, such as salaries, require what type of management to ensure profitability?
Fixed costs, such as salaries, require what type of management to ensure profitability?
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Study Notes
Cash Flow Management
- Cash flow statements track cash inflows (e.g., sales, rents) and outflows (e.g., payments, loan interest) to maintain liquidity.
- Rolling cash budgets are employed for short-term cash flow management, as exemplified by McDonald's.
- Distributing large payments over time helps avoid cash shortages.
- Offering early payment discounts (2-5%) can accelerate cash inflows from customers.
- Factoring involves selling accounts receivable to finance companies for immediate cash, improving cash flow but reducing total current assets.
Working Capital Management
- Control over current assets is essential for managing liquidity:
- Cash is the most liquid asset and vital for paying liabilities; businesses can increase cash through asset sales or leasebacks.
- Receivables must be collected timely to prevent cash flow problems.
- Inventory management, like McDonald's use of FIFO, helps maintain fresh stock and cash availability while avoiding excess inventory that can tie up cash.
- Managing current liabilities is key to cash flow stability:
- Stretching payments to suppliers allows for better cash flow management without harming credit ratings.
- It is crucial to compare costs and terms of loans to maintain good bank relationships.
- Utilizing overdrafts as a short-term finance option requires prompt cash deposits, and McDonald's maintains a significant line of credit to manage cash flow gaps.
Profitability Management
- Effective cost controls are necessary to maintain profitability:
- Fixed costs, such as salaries and insurance, must be managed effectively, while variable costs fluctuate with production impacts.
- Minimizing unnecessary expenses through budgeting and operational efficiency is essential.
- McDonald's balances fixed costs (e.g., council rates) and variable costs (e.g., food, packaging) for profitability.
- Revenue controls focus on increasing sales through strategic marketing and pricing strategies.
- The shift to a 95% franchised store model has allowed McDonald's to stabilize revenue through rent and royalties.
Global Financial Management
- Fluctuating exchange rates impact international business competitiveness and profitability, prompting companies like McDonald's to finance local purchases in local currencies to mitigate risks.
- Interest rate considerations allow businesses to borrow internationally for potentially lower costs but require vigilant monitoring of currency fluctuations.
- Various international payment methods carry different risk profiles:
- Payment in Advance represents low risk for exporters.
- Letters of Credit offer a secured payment method preferred by exporters.
- Clean Payments involve higher risk, as they rely on trust.
- Bills of Exchange ensure payment from importers at predetermined times.
- Hedging strategies involve minimizing currency risks through consistent currency usage or forward contracts.
- Derivatives such as forward contracts and options are used to manage exchange rate risks effectively; for example, Qantas hedges against fuel costs and foreign currency revenue to ensure financial stability.
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