Working Capital and Debtor Management: Exercises Robert Alan Hill Download free books at Robert Alan Hill Working Capital And Strategic Debtor Management Exercises Download free eBooks at bookboon.com Working Capital And Strategic Debtor Management: Exercises 1st edition © 2013 Robert Alan Hill & bookboon.com ISBN 978-87-403-0588-3 Download free eBooks at bookboon.com Deloitte & Touche LLP and affiliated entities Working Capital And Strategic Debtor Management: Exercises Contents Contents About the Author Part One: An Introduction An Overview 10 1.1 Introduction 10 1.2 Working Capital Management 13 1.3 Strategic Debtor Management 15 1.4 Exercise 1: The Terms of Sale 17 1.5 Summary and Conclusions 19 1.6 Selected References Part Two: Working Capital Management 360° thinking 20 21 2 The Objectives and Structure of Working Capital Management 22 2.1 Introduction 22 2.2 Exercise 2.1: Financial Strategy: An Overview 2.3 Exercise 2.2: Financial Strategy and Working Capital 360° thinking 22 23 360° thinking Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities Discover the truth at www.deloitte.ca/careers Download free eBooks at bookboon.com © Deloitte & Touche LLP and affiliated entities Discover the truth at www.deloitte.ca/careers Click on the ad to read more © Deloitte & Touche LLP and affiliated entities Dis Working Capital And Strategic Debtor Management: Exercises Contents 2.4 Summary and Conclusions 25 2.5 Selected References 26 Part Two: Working Capital Management 27 3 The Accounting Concept of Working Capital Management: A Critique 28 3.1 Introduction 28 3.2 Exercise 3.1: Working Capital Investment and Risk 29 3.3 Exercise 3.2: Working Capital Finance and Risk 30 3.4 Summary and Conclusions 34 3.5 Selected References 35 Part Two: Working Capital Management 36 4 The Working Capital Cycle and Operating Efficiency 37 4.1 Introduction 37 4.2 The Case Study: An Introduction 37 4.3 The Case Study: The Analysis 40 4.4 Summary and Conclusions 44 4.5 Selected References 45 Increase your impact with MSM Executive Education For almost 60 years Maastricht School of Management has been enhancing the management capacity of professionals and organizations around the world through state-of-the-art management education Our broad range of Open Enrollment Executive Programs offers you a unique interactive, stimulating and multicultural learning experience Be prepared for tomorrow’s management challenges and apply today For more information, visit www.msm.nl or contact us at +31 43 38 70 808 or via admissions@msm.nl For more information, visit www.msm.nl or contact us at +31 43 38 70 808 the globally networked management school or via admissions@msm.nl Executive Education-170x115-B2.indd Download free eBooks at bookboon.com 18-08-11 15:13 Click on the ad to read more Working Capital And Strategic Debtor Management: Exercises Contents 46 Part Two: Working Capital Management 5 Real World Considerations and the Credit Related Funds System 47 5.1 Introduction 47 5.2 Exercise 5: Real World Solvency and Liquidity 47 5.3 Summary and Conclusions 50 5.4 Selected References 51 Part Three: Strategic Debtor Investment 52 6 The Effective Credit Price and Decision to Discount 53 6.1 Introduction 53 6.2 Exercise 6.1: Terms of Sale: A Theoretical Overview 54 6.3 Exercise 6.2: The Decision to Discount 58 6.4 Exercise 6.3: The Effective Price Framework 60 6.5 Exercise 6.4: “The Real” Cost of Trade Credit 63 6.6 Summary and Conclusions 66 GOT-THE-ENERGY-TO-LEAD.COM We believe that energy suppliers should be renewable, too We are therefore looking for enthusiastic new colleagues with plenty of ideas who want to join RWE in changing the world Visit us online to find out what we are offering and how we are working together to ensure the energy of the future Download free eBooks at bookboon.com Click on the ad to read more Working Capital And Strategic Debtor Management: Exercises Contents Part Four: Summary and Conclusions 68 Review Exercises 69 7.1 Introduction 69 7.2 Exercise 7.1: Working Capital: A Review 70 7.3 Exercise 7.2: Cash Flow and the Budgeting Process 73 7.4 Exercise 7.3: Cash Flow and Accounting Profit 75 7.5 Exercise 7.4: The Preparation of a Cash Budget 76 7.6 Exercise 7.5: Terms of Sale: A Review 81 7.7 Summary and Conclusions 86 7.8 Selected References 87 With us you can shape the future Every single day For more information go to: www.eon-career.com Your energy shapes the future Download free eBooks at bookboon.com Click on the ad to read more Working Capital And Strategic Debtor Management: Exercises About the Author About the Author With an eclectic record of University teaching, research, publication, consultancy and curricula development, underpinned by running a successful business, Alan has been a member of national academic validation bodies and held senior external examinerships and lectureships at both undergraduate and postgraduate level in the UK and abroad With increasing demand for global e-learning, his attention is now focussed on the free provision of a financial textbook series, underpinned by a critique of contemporary capital market theory in volatile markets, published by bookboon.com To contact Alan, please visit Robert Alan Hill at www.linkedin.com Download free eBooks at bookboon.com Part One: An Introduction Download free eBooks at bookboon.com Working Capital And Strategic Debtor Management: Exercises An Overview An Overview 1.1 Introduction Irrespective of the research area (whether in the physical or social sciences) a logical procedure when constructing theoretical models has always been to make simplifying assumptions to improve our understanding of the real world As a convenient benchmark, all the texts in my bookboon series (referenced at the end of this Chapter) therefore begin with an idealised picture of investors (including management) who are rational and risk-averse, operating in reasonably efficient capital markets With a free flow of information and no barriers to trade, they can formally analyse one course of action in relation to another for the purpose of wealth maximisation with a degree of confidence In a sophisticated mixed economy, summarised in Figure 1.1 below, where the ownership of corporate assets is divorced from control (the agency principle), we can also define and model the normative goal of strategic financial management under conditions of certainty as: • The implementation of investment and financing decisions using net present value (NPV) maximisation techniques to generate money profits from all a firm’s projects in the form of retentions and distributions These should satisfy the firm’s existing owners (a multiplicity of shareholders) and prospective investors who define the capital market, thereby maximising share price Figure 1.1: The Mixed Market Economy Over their life, individual projects should eventually generate cash flows that exceed their overall cost of funds (i.e the project discount rate) to create wealth This positive net terminal value (NTV) is equivalent to a positive NPV, defined by a recurring theme of strategic financial management, namely the time value of money (i.e the value of money over time, irrespective of inflation) determined by borrowing and lending rates Download free eBooks at bookboon.com 10 Working Capital And Strategic Debtor Management: Exercises Real World Considerations and the Credit Related Funds System The CEO Mr Francis has convened a Board meeting to establish what is wrong with its working capital position The following “snapshot” data taken from the company accounts has been itemised as a basis for discussion PLOOLRQ /DVW