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