# Finance

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CORPORATE FINANCE COURSE

CORPORATE FINANCE 2.1
Working Capital Management
Sept. 2014
Ir Frank W. van den Berg mba

Vrije Universiteit, Amsterdam
ALYX Financial Consultancy

bv,

Aerdenhout

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OUTLINE CORPORATE FINANCE
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Basics & Guiding principles

Time value of money + Capital Budgeting

Valuation of CF + Bonds

Valuation of shares (+ co.’s)

Financial Analysis (Ratios)

Financial Planning (EFN)
• à Working Cap. Mgt. (A/R, Inv., A/P)

Debt Financing

2

FIN
1.5

FIN
2.1

Entrepreneurial Finance / Raising Equity
Mergers & Acquisitions / Corp. Restructuring

FINANCIAL RATIOS - Example 1
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Sample Balance sheet (000’s €)
Cash +
This “looks” great, but is probably too aggressive (why?)
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FINANCIAL RATIOS
Credit policy
“Normal” payment terms: 2/10 net 30 à 2% discount within 10 days payment, otherwise 30 days
Example: Co. XYZ now has 30 days payment terms; average payment by all customers is now 40 days.
XYZ considers 2/10 net 30 terms; the (assumed) result is that 20% is paid in 10 days, 80% in 45 days.
What is better for the company? (interest = say 5%)
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FINANCIAL RATIOS
Credit policy

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Example: Co. XYZ now has 30 days payment terms; average payment by all customers is now 40 days (A).
XYZ considers 2/10 net 30 terms; the (assumed) result is that 20% is paid in 10 days, 80% in 45 days (B). Say sales = 50 mln. à paid in 10 days: 20% x 50 – 2% = 9,8
NPVA = 50 / (1,05) 40 / 365 = 49.727.520 ß higher value
NPVB = 9,8 / (1,05) 10 / 365 + 40 / (1,05) 45 / 365 =
9.786.593 + 39.754.935 = 49.541.528

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FINANCIAL RATIOS
Average inventory period: (Inv. / CGS) x 12 =
3 / 10 x 12 = 3,6 mths. (= fairly high)
Reduce Inventory as much as possible
Avoid “stock-outs”
Use JIT: “just-in-time” (car plant)