Chapter 15 - Working Capital
Chapter 15 - Working Capital
Learning Goals
Understand working capital management, net working capital, and the
related trade-off between profitability and risk.
Describe the cash conversion cycle, its funding requirements, and the
key strategies for managing it.
Explain the credit selection process and the quantitative procedure for
evaluating changes in credit standards.
current assets هي األصول المتداولة التي من المتوقع تحويلها الى كاش خالل فترة ال تتع دى
السنة
current liabilities هي االلتزامات المتداولة على الشركة المتوقع س دادها ودفعه ا خالل ف ترة
زمنية بسيطة
الهدف من إدارة رأس المال العامل (أو المالية قصيرة األجل) هو إدارة كل من األصول الحالية
والنقد) والمطلوبات، واألوراق المالية القابلة للتسويق، والحسابات المدينة، للشركة (المخزون
والحسابات المستحقة الدفع) لتحقيق التوازن بين، والمستحقات، المتداولة (األوراق المستحقة الدفع
الربحية والمخاطر التي تساهم بشكل إيجابي في قيمة الشركة
Firms are able to reduce financing costs or increase the funds available
for expansion by minimizing the amount of funds tied up in working
capital.
الشركات قادرة على خفض تكاليف التمويل أو زيادة األموال المتاحة للتوسع من خالل تقليل كمية
األموال المقيدة في رأس المال العامل
• Net working capital (NWC) صافي رأس المال العامل: is the difference
between the firm’s current assets and its current liabilities; can be
positive or negative.
• A firm that is insolvent is unable to pay its bills as they come due.
We can demonstrate how changing the level of the firm’s current assets
affects its profitability–risk trade-off by using the ratio of current assets
to total assets.( Current assets / Total assets).
Equity capital
This ratio indicates the percentage of total assets that has been financed
with current liabilities. Again, assuming that total assets remain
unchanged, the effects on both profitability and risk of an increase or
decrease. When the ratio increases, profitability increases. Why?
Because the firm uses more of the less-expensive current liabilities
financing and less long-term financing. Current liabilities are less
expensive because only notes payable, which represent about 20
percent of the typical manufacturer’s current liabilities, have a cost. The
other current liabilities are basically debts on which the firm pays no
charge or interest. However, when the ratio of current liabilities to total
assets increases, the risk of insolvency also increases because the
increase in current liabilities in turn decreases net working capital. The
opposite effects on profit and risk result from a decrease in the ratio of
current liabilities to total assets.
Cash Conversion Cycle
يقيس طول الوقت الالزم لشركة لتحويل النقدية المستثمرة في عملياتها إلى النقدية المستلمة نتيجة
لعملياتها
( دورة تشغيل الشركةOC) هي الوقت من بداية عملية اإلنتاج إلى تحصيل النقد من بيع
المنتج النهائي
• ( يتم قياسه في الوقت المنقضي من خالل جمع متوسط عمر المخزونAAI) ومتوسط
( فترة التحصيلACP)
OC = AAI + ACP……………………………..Days
-Average age of inventory (AAI) متوسط عمر المخزون: The length of time
from the beginning of production process till the sale of products on
credit.
Average collection period (ACP) متوسط فترة التحصيل: The length of time
from the sale of products till the collection of cash from account
receivables.
المدة الزمنية من بيع المنتجات حتى تحصيل النقدية من حسابات الذمم المدينه
operating cycle (OC) preferred to be short, why? To reduce the amount
of money invested in the firms operations ( reduce the money tied up in
operations) , to avoid insolvency.
The time it takes to pay the accounts payable, measured in days, is the
average payment period (APP).
The operating cycle less the average payment period yields the cash
conversion cycle. The formula for the cash conversion cycle is:
CCC = OC – APP
Substituting for OC, we can see that the cash conversion cycle has three
main components, as shown in the following equation: (1) average age
of the inventory, (2) average collection period, and (3) average payment
period.
Note: the firm can reduce the CCC by shortening AAI and ACP and
lengthening ( increasing APP).
The goal is to minimize the length of the cash conversion cycle, which
minimizes negotiated liabilities. This goal can be realized through use of
the following strategies:
CCC = 58 + 40 – 89 = 9 days
The resources Whirlpool had
invested in this cash conversion
cycle (assuming a 365-day year)
were:
The first component of the cash conversion cycle is the average age of
inventory. The objective for managing inventory is to turn over
inventory as quickly as possible without losing sales from
stockouts. The financial manager tends to act as an advisor or
“watchdog” in matters concerning inventory. He or she does not have
direct control over inventory but does provide input to the inventory
management process.
وهو الحجم الذي يقلل من إجمالي، عبارة عن تقنية إلدارة المخزون لتحديد الحجم األمثل للطلب
تكاليف الطلبات وتكاليف التخزين
EOQ assumes that the relevant costs of inventory can be divided into
order costs and carrying costs.
The EOQ model analyzes the tradeoff between order costs and carrying
costs to determine the order quantity that minimizes the total inventory
cost.
A formula can be developed for determining the firm’s EOQ for a given
inventory item,
– Thus,
The reorder point نقطة إعادة الطلب:is the point at which to reorder
inventory, expressed as days of lead time ´ daily usage.
days of lead time أيام المهلة: the number of days of lead time the firm
needs to place and receive an order and the firm’s daily
عدد األيام التي تلزم الشركة لوصول البضاعة لها من وقت الطلب حتى وصولها
The reorder point for MAX depends on the number of days MAX
operates per year.
– Assuming that MAX operates 250 days per year and uses
1,100 units of this item, its daily usage is 4.4 units (1,100 ÷
250).
Reorder point = 2 days ´ ( 1100 unit / 255 day) = 2 ´ 4.4 = 8.8 = 9 units
– Because lead times and usage rates are not precise, most firms
hold safety stock—extra inventory that is held to prevent stock
outs of important items.
the reorder point for this item is 12.8 units [(2 ´ 4.4) + 4].
If the wants to keep 4 units as safety stock, calculate the reorder point?
: هي تقنية إلدارة المخزون تقلل من استثمار المخزون من خالل وصول المواد في الوقت المطلوب
إلنتاجها بالضبط
- فإن نظام، نظرً ا ألن هدفه هو تقليل االستثمار في المخزونJIT ال يستخدم أي
ً مخزون أمان (أو قليل
)جدا
– Extensive coordination among the firm’s employees, its
suppliers, and shipping companies must exist to ensure that
material inputs arrive on time.
- يجب وجود تنسيق مكثف بين موظفي الشركة ومورديها وشركات الشحن لضمان
وصول مدخالت المواد في الوقت المحدد
- يؤدي عدم وصول المواد في الوقت المحدد إلى إغالق خط اإلنتاج حتى وصول
المواد
الهدف من إدارة الحسابات المدينة هو جمع الحسابات المستحقة القبض بأسرع ما يمكن دون خسارة
المبيعات من تقنيات التحصيل ذات الضغط العالي
الغرض من هذه الطريقة هو اتخاذ قرار ائتماني مستنير نسبيًا بسرعة وبتكلفة منخفضة
Example: Dodd Tool is currently selling a product for $10 per unit. Sales
(all on credit) for last year were 60,000 units. The variable cost per unit
is $6. The firm’s total fixed costs are $120,000.The firm is currently
contemplating a relaxation of credit standards that is expected to result
in the following:
profit contribution per unit = Sale price per unit – variable cost per unit
= $10 - $ 6 = $4
total additional profit contribution = profit contribution per unit ´ sales
increase
Total variable cost of annual sales إجمالي التكلفة المتغيرة للمبيعات السنوية
is the number of times each year that the firm’s accounts receivable are
actually turned into cash. It is found by dividing the average collection
period into 365 (the number of days assumed in a year).