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 FWvdB/2014 1 OUTLINE CORPORATE FINANCE FWvdB/2014 • 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 FWvdB/2014 Sample Balance sheet (000’s €) Cash +…show more content…
This “looks” great, but is probably too aggressive (why?) FWvdB/2014 15 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%) FWvdB/2014 16 FINANCIAL RATIOS Credit policy FWvdB/2014 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 17 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) Apply advanced Logistics system (supermarket)

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