Cash Flow Management

• Confirming, offered by financial institutions to companies for payment of suppliers, helps the liquidity of the supplier.
• Considerations that affect payment management include ethics, reputation, current legal regulations, and the cost that a delay in payment may entail.
• A company reports cash flow from financing activities if it pays dividends to its shareholders.
• An increase in assets is an application of funds.
• The cash conversion cycle measures the time elapsed between the payment to suppliers and the income from sales.
• Cash from the sale of goods is operating cash flow.
• The order in which the items are set is: Cash flow to debt, Cash flow to the shareholder, Free cash flow.
• Characteristics of the indirect method of calculating cash flows include requiring less data for calculation, Starting with BAIT (EBIT) and adding additional items.
• Investing activities include the payment of bank debt, provided that the debt has been used for investment purposes.

Fixing Cash Flow Problems

• If a cash flow forecast suggests that a business will run out of cash, delay supplier payment.
• Factoring, or sale of the invoice to a third party, helps to manage the liquidity of the seller.
• For a company with a cost of debt of 7% before taxes, a return required by its shareholders of 14%, and a tax rate of 30%, the tax shield is 0%.

Statement assessment

• Positive operating cash flows are not always a good sign, but generating operating cash flow that exceeds capital expenditures is a desirable characteristic.
• Earnings that significantly exceed operating cash flow may be an indication of conservative (or even inappropriate) accounting choices.

Fund Generation

• When funds generated are negative, this implies an application of funds.
• The operating need for funds in a company is not covered by negotiated resources, especially when working capital is low.

Company Performance and Debt

• In a market for mobile phones with ample demand, both companies have the same profit margin, do not pay out dividends and have no bank debt.
• Company A's operating need for funds is always 20% of sales, while Company B's is 25%.
• If Company A implements a sales growth goal of 100%, A-D might apply to company B.
  • Company B issues debt
  • Company B issues shares of stock to raise capital
  • Company B pays dividends to shareholders
  • Company B pays down debt
• Accounts payable is not never a source of funds, only an application. Instead, accounts receivable can be a source or an application of funds.

Alleviating Cash Deficit

• The following can help alleviate a cash deficit:
  • Extend long-term debt
  • Increase capital stock
  • Advancing collections
• FUNFIN SA has had during the year 2020 an average daily sales of 75,000 (VAT included).
• The average collection period is 60 days.
• The real average has been 72 days.
• The financial cost of this delay throughout the year there is not enough information to determine it
• An increase in the treasury is an application of funds.
• The main function of the treasurer is to obtain and manage the cash of the company.

Net Income

• Company X generated a net income of 60,000 in year 1.
• It is not possible to tell if The cash position is 60000 at the end of the year
• Tesla's working capital competitive advantage is not determined by its high inventory turnover.
• The tax shield does not consist of the bank charging less interest to reduce the impact of income taxes.

Payment Management Elements

• Elements of payment management include:
  • Negotiate deadlines with suppliers
  • Avoid surcharges for late payment
  • Give customers discounts for early payment
• It does not establish the difference between cost and expense to generate payments to suppliers

Accounts Payable

• Increasing accounts payable to suppliers decreases accounts payable turnover; no change in cash flow from financing activities
• The following are part of the cash conversion cycle: Provisioning period, Manufacturing period, Collection period, Payment period.
• Company A expects to have sales of 10,000 in month 1 of operations, with an average collection period of one month.
• Its expected expenses are 1,000 per month, always paid in cash. Nothing is expected to be sold in month 2.
• In the treasury plan, the company will record the following cash flows during the first two months of operation: Month 1 -1,000.
• The following are alternatives to cover a cash deficit
  • Issuance of shares
  • Sell assets
• Not give customers more time or ask suppliers for deadline
• When the difference between operating needs for funds and working capital is negative, the company cannot finance unlimited growth in its sales.

Sales Growth

• Company A and Company B are both in the market for mobile phones, which has ample demand.
• Both companies have the same profit margin, do not pay out dividends and have no bank debt.
• Company A's operating need for funds is always 20% of sales, while Company B's is 15%.
• If Company A can implement a sales growth goal of 100%, Company B cannot be able to implement an increase in sales higher than 100%

Collection Management

• The following are elements of collection management but not suppliers delivery late:
  • Establish what guarantees are requested from the client to give him credit
  • Determine credit limits for each client
  • Negotiate default interest for late payment from the client to give him credit

Two Main CFO Functions

• The two main functions that the CFO is in charge of include treasurer and controller
• An increase in accounts payable does not constitute an application of funds

Investment Classification

• The following items would not be classified as investing activities in the statement of cash flows:
  • Payments of dividends
  • Receipt of dividends
  • Sale of goods
  • Loan proceeds
• The role of the treasurer cannot be considered tactical, while the role of the controller can be considered strategic.
• Free cash flow is distributed among the following: Shareholders, Banks, Customers, Providers.
• The operating cycle does not measure the time elapsed between the purchase of inventory and the payment to the customer.
• Tesla does not have a much faster cash conversion cycle than its competitors.
• The difference between operating capital needs and working capital is not equal to the cash deficit.
• Jamila Limited has accounts payable days of 24.22, inventory days of 7.68, and accounts receivable days of 18.11.
• Jamila Limited's cash conversion cycle = +1,57

Financing Activities

• The following items would be classified as financing activities in the statement of cash flows:
  • Inventory payments
  • Sale of goods
  • Land acquisition
• Law 3 of 2004 and Law 15 of 2010 regulate the maximum payment term for Payment to national suppliers
• The calculation of the average collection period requires the following: Customer account balance. -If customer balance comes with VAT, ensure that sales amount also includes, calculate average sales during the period