Lecture 4 - Managing Funds & Sources of Finance
Obligations in Financial Reporting
Key Financial Ratios
Role of Financial Planning
Cash Flow Management
Sources of Financing
Estimate income / expense
Estimate initial investment
Locate sources of funds
Profit margin
Return on equity
Debt - equity ratio
Inventory turnover ratio
Current ratio
Quick ratio
Positive cash flow
Cash balance
Credit / Collections control
Advantages of good financial planning
Enhancing supplier relations
Increase profits
Higher quantum translates to more sales
Free up substantial cash flow
Equipment, Materials, Personnel, Machines
Cash flow: amount of cash available at a given time to pay expenses
Types of Expenses
Variable expenses
Fixed expenses
Change in relation to volume of output
E.g. Raw materials
Do not vary with output, but remain the same
E.g. Depreciation on buildings
Profits for year/Sales for year
Net profit/Equity of company
Debt of company/Equity of compnay
Cost of goods sold per year/Average inventory
Company has enough money to pay your creditors & take care of contingencies
Plan daily / weekly / monthly cash needs
Prepare for cash crisis
Establish & maintain good credit policies
Set aside funds to earn interest
Schedule payments
Keep fixed costs low & tie variable costs to revenue
Identify slow players
Investigate customer's ability & willingness to pay
Monitor past dues
Write off uncollectibles
Impact of Foreign Exchange
Regional & International Businesses
Fluctuations in Foreign Currencies
A small fluctuation will lead to considerable impact on the performance of the firm
Need to be cautious when dealing with foreign business partners & business transactions
Self, Family/Relatives/Friends, Banks, Venture Capital firms, Angel Capitalists
Government Assistance Scheme, Crowd funding, Loan sharks
Additional Capital
Cost savings opportunities
Growth & Expansion
Better Equipment
Taking advantage of quantity discounts
Take advantage of developed opportunity
Growth translates into a larger volume of receivables & bigger inventories
Need to hold larger sums of cash to meet obligations with outside vendors & internal business needs
Expand new branches, products or increase
CA-I / CL
CA/CL