Ifm Presentation (1)

7/27/2019 Ifm Presentation (1)

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PRESENTATION ONINTERNATIONAL WORKINGCAPITAL MANAGEMENT

PRESENTED BY:

SHWETA SAINI

RAHUL CHAUHAN

BASANT


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Working capital management in international context

involves managing cash balances, account receivable,

inventory, and current liabilities when faced with political,

foreign exchange, tax, and liquidity constraints.

The overall goal is to reduce funds tied up in working

capital. This should enhance return on assets and equity.

It also should improve efficiency ratios and other

evaluation of performance parameters.


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CASH

MANAGEMENT

RECEIVABLESMANAGEMENT

INVENTORYMANAGEMENT


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CASH MANAGEMENT


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Although cash is only 1-3% of total current assets but its

management is very important.

Management of cash includes: Determination of optimum amount of cash required in

the business.

To keep the cash balance at optimum level and

investment of surplus cash in profitable manner. Prompt collection of cash from receivables and efficient

disbursement of cash.


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OBJECTIVES OF CASH MANAGEMENT

To maintain optimum cash balance.

To keep the optimum cash balance requirements

at minimum level by prompt collection & late

disbursement etc.


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FACTORS TO BE CONSIDERED WHILE

DETERMINING THE OPTIMUM CASH

BALANCE Synchronization of cash flows.

Cash shortage costs.

Excess cash balance costs.

Procurement and management costs.

Compensating balance.

Uncertainty. Firms capacity to borrow in emergence.

Efficiency of Management


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RECEIVABLES MANAGEMENT


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Receivables management refers to the decision a

business makes regarding to the overall credit,

collection policies and the evaluation ofindividual credit applicants.

Receivables Management is also called trade

credit management.

OBJECTIVES OF RECEIVABLES

MANAGEMENT

to promote sales and profits until that point is

reached where the return on investment infurther funding receivables is less than the cost

of funds raised to finance that additional credit

i.e. cost of capital.


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TRADE CREDIT VS. CONSUMER CREDIT

Trade Credit :

It occurs when one business sells

goods to another business.

Consumer Credit :

It occurs when a business sells

goods to an individual.

Trade credit terms are more liberal than

consumer credit terms.


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COST OF MAINTAINING RECEIVABLES

Collection Costs:i.e. for maintenance of credit & collection

department, expenses incurred for obtaining information

about credit-worthiness of potential customers.

Capital Cost/ Cost of Financing Delinquency Costs:

i.e. cost of financing for an extended

period, cost of extra steps to be taken to collect

overdue e.g. reminders, legal charges etc. Default Costs :

E.g. Bad debts etc.


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BENEFITS OF RECEIVABLES

Increased Sales

Anticipated Profits liberal policy can take two

forms:

Sales Extension

Sales Retention


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INVENTORY MANAGEMENT


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Inventories are assets of firm and as such they

represent an investment. Because such investment requires the precious

funds, managers must ensure that the firm

maintains inventories at the correct level.

If they become too large, the firm loses the

opportunity to employ those funds more

effectively. Similarly, if they are too small, the

firm may lose sales.


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OBJECTIVES OF HOLDING INVENTORY:

Transaction Motive

Precautionary Motive: Strikes, labour problems,

natural calamities etc.

Speculative Motive to earn extra profit due toshortage

Contractual Agreements


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BENEFITS OF HOLDING INVENTORY

For Trading Concerns

Uninterrupted selling process

Quality discounts

For manufacturing concerns

Uninterrupted production schedule Independent sales activity

TYPES OF INVENTORIES

The common types of inventories for most of thebusiness firms may be classifies as finishedgoods, w-i-p and raw materials.


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Finished Goods:

These are just ready for sale tocustomers. Inventories of finished goods arise

because of the time involved in production processand the need to meet customers demandpromptly.

Work-in Progress:

The work-in-progress refers to partiallyproduced goods. The value of work-in-progressincludes the raw materials costs, the direct wagesand expenses already incurred and theoverheads, if any.

Raw Materials:The raw materials include the materialswhich are used in the production process andevery manufacturing firms has to carry certainstock of raw materials in stores.


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DETERMINATION OF STOCK LEVELSBoth the excess and shortage of materials are

harmful for the firms. Hence various stock levels must be determined:

MINIMUM LEVEL: This represents the quality which must be maintained in

hand at all times.minimum Level=Re-ordering level - (Normal consumption Normal re-order

period)

RE-ORDERING LEVEL When the quality of materials reaches at a certainfigure then fresh order is send to get materials again. Re-ordering level is

fixed between minimum level and maximum level.Re-ordering level= Maximum consumption Maximum re-order period.

MAXIMUM LEVEL It is the quantity beyond which a firm should not exceedits stock otherwise there will be overstocking.

Maximum stock level= Re-ordering level + Re-ordering quantity-(Minimumconsumption Minimum re-ordering period).

DANGER LEVEL It is the level beyond which materials should not fall in anycase. If danger level arise then immediate steps should be taken toreplenish the stock even if more cost is incurred in arranging the materials.

Danger level= Average consumption maximum re- order period foremergency purchase


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THANK YOU

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