 Credit Management Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 30 © The McGraw-Hill Companies, Inc.,

Slides:



Advertisements
Similar presentations
Chapter 20 Learning Objectives
Advertisements

MANAJEMEN KEUANGAN - Kuliah V CREDIT MANAGEMENT RWJJ CH. 28 FEUI Program Studi Maksi – PPAK Sugeng Purwanto Ph.D, FRM Tugas: Pelajari Exercises.
 Where Net Present Values Come From Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 11 © The McGraw-Hill.
 Real Options Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 21 © The McGraw-Hill Companies, Inc., 2000.
The McGraw-Hill Companies, Inc., 2000
 Financial Analysis and Planning Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 28 © The McGraw-Hill Companies,
 Financial Analysis and Planning Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 28 © The McGraw-Hill Companies,
8- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
1 Chapter 14 Working Capital Management and Policies McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Credit and Inventory Management Chapter Twenty.
 Making Investment Decisions with the Net Present Value Rule Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter.
The McGraw-Hill Companies, Inc., 2000
The McGraw-Hill Companies, Inc., 2000
Key Concepts Understand the key issues related to credit management
© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 1 B Class #1  BM6 chapters 1, 2, 3  Based on slides created by Matthew Will  Modified.
The McGraw-Hill Companies, Inc., 2000
Credit Intro to Credit & Establishing Good Credit.
29-0 McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited Corporate Finance Ross  Westerfield  Jaffe Sixth Edition 29 Chapter Twenty Nine Credit Management.
1 Working Capital Management by Binam Ghimire. Learning Objectives  Concept and Significance of WC management  Cash Conversion Cycle  Receivables Management.
 Leasing Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 25 © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 0 Chapter 17 Working Capital Management.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Corporate Finance 3e Ross, Thompson, Christensen, Westerfield and Jordan Slides.
Prepared by Professor Wei Wang Queen’s University © 2011 McGraw–Hill Ryerson Limited Chapter Twenty Nine Credit Management.
The McGraw-Hill Companies, Inc., 2000
Credit Risk and the Value of Corporate Debt
Chapter 24 Principles PrinciplesofCorporateFinance Ninth Edition Credit Risk and the Value of Corporate Debt Slides by Matthew Will Copyright © 2008 by.
Chapter 2 Present Value and The Opportunity Cost of Capital
CREDIT MANAGEMENT. The Cash Flows of Granting Credit Credit sale is made Customer mails check Firm deposits check Bank credits firm’s account Accounts.
The McGraw-Hill Companies, Inc., 2000
 Conclusion: What We Do and Do Not Know about Finance Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 35.
 Cash Management Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 31 © The McGraw-Hill Companies, Inc.,
© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Credit and Inventory Management Chapter Twenty Prepared by Anne Inglis, Ryerson University.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Working Capital Management Chapter 17.
18 Management of Accounts Receivable and Inventories ©2006 Thomson/South-Western.
 Interactions of Investment and Financing Decisions Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 19.
Analyzing Financial Statements. Financial Statement and its Analysis Collective name for the tools and techniques that are intended to provide relevant.
 An Overview of Corporate Financing Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 14 © The McGraw-Hill.
Reporting and Interpreting Sales Revenue, Receivables, and Cash Chapter 6 McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, Inc.
Chapter 24 Principles of Corporate Finance Eighth Edition Credit Risk Slides by Matthew Will Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights.
Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong Chapter 2 Present Value and The Opportunity Cost of Capital.
Nursery Management Understanding and Managing Finance Session 9.
How To Calculate Present Values Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong Chapter 3 McGraw Hill/Irwin.
© 2012 McGraw-Hill Ryerson LimitedChapter  Setting a Credit Policy ◦ Credit policy: Standards set to determine the amount and nature of credit to.
Chapter 30 Principles of Corporate Finance Tenth Edition Working Capital Management Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill.
Chapter 30 Principles PrinciplesofCorporateFinance Ninth Edition Working Capital Management Slides by Matthew Will Copyright © 2008 by The McGraw-Hill.
 An Overview of Corporate Financing Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 14 © The McGraw-Hill.
 Valuing Debt Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 23 © The McGraw-Hill Companies, Inc., 2000.
Chapter 2 Principles of Corporate Finance Eighth Edition Present Value, the Objectives of The Firm, and Corporate Governance Slides by Matthew Will Copyright.
RECEIVABLES MANAGEMENT AND FACTORING CHAPTER 28. LEARNING OBJECTIVES  Emphasize the need and goals of establishing a sound credit policy  Show how an.
20-0 Credit Policy Effects 20.3 Revenue Effects Delay in receiving cash from sale May be able to increase price May increase total sales Cost Effects –
10-1 Chapter 10 Accounts Receivable Accounts Receivable and Inventory Management u Credit and Collection Policies u Analyzing the Credit Applicant.
17-1 Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
Chapter 8 Sources of Short-Term Financing. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. PPT 8-1 FIGURE 8-1 The prime.
Copyright ©2003 South-Western/Thomson Learning Chapter 17 Management of Accounts Receivable and Inventories.
 Short Term Lending and Borrowing Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 32 © The McGraw-Hill.
Copyright © 2003 Pearson Education, Inc. Slide 14-0 Ch 14 Learning Goals 1.Impact of working capital management on liquidity, profitability and risk. 2.Cash.
LOS 6 Credit-Granting Decisions Learning Outcome Statements (LOS) identify information costs and the credit-granting decision understand the traditional.
RECEIVABLES MANAGEMENT.  OPPORTUNITY COST  COLLECTION COST  BAD DEBTS  INCREASED SALES  INCREASE IN MARKET SHARE  INCREASE IN PROFITS.
©2012 McGraw-Hill Ryerson Limited 1 of 39 ©2012 McGraw-Hill Ryerson Limited 3.Define the various marketable securities available for investment by the.
Chapter 20 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.
20- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Chapter 20 McGraw Hill/Irwin.
 Short Term Financial Planning Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 29 © The McGraw-Hill Companies,
Cash Budgeting A cash budget is a primary tool of short-run financial planning. The cash balance tells the manager what borrowing is required or what.
Principles of Corporate Finance
RECEIVABLES MANAGEMENT AND FACTORING
Working Capital Management
Credit Management and Collection
Cash and Working Capital Management
TERMS OF SALE: There are three factors underlying terms of sale:
Credit Risk and the Value of Corporate Debt
Presentation transcript:

 Credit Management Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 30 © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Topics Covered  Terms of Sale  Commercial Credit Instruments  Credit Analysis  The Credit Decision  Collection Policy  Bankruptcy

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Terms of Sale Terms of Sale - Credit, discount, and payment terms offered on a sale. Example - 5/10 net percent discount for early payment 10 - number of days that the discount is available net 30 - number of days before payment is due

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Terms of Sale  A firm that buys on credit is in effect borrowing from its supplier. It saves cash today but will have to pay later. This, of course, is an implicit loan from the supplier.  We can calculate the implicit cost of this loan.

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Terms of Sale  A firm that buys on credit is in effect borrowing from its supplier. It saves cash today but will have to pay later. This, of course, is an implicit loan from the supplier.  We can calculate the implicit cost of this loan

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Terms of Sale Example - On a $100 sale, with terms 5/10 net 60, what is the implied interest rate on the credit given?

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Terms of Sale Example - On a $100 sale, with terms 5/10 net 60, what is the implied interest rate on the credit given?

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Instruments  Terminology  open account  promissory note  commercial draft  sight draft  time draft  trade acceptance  banker’s acceptance

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Analysis Credit Analysis - Procedure to determine the likelihood a customer will pay its bills.  Credit agencies, such as Dun & Bradstreet provide reports on the credit worthiness of a potential customer.  Financial ratios can be calculated to help determine a customer’s ability to pay its bills.

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Analysis Numerical Credit Scoring categories  The customer’s character  The customer’s capacity to pay  The customer’s capital  The collateral provided by the customer  The condition of the customer’s business

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Analysis Multiple Discriminant Analysis - A technique used to develop a measurement of solvency, sometimes called a Z Score. Edward Altman developed a Z Score formula that was able to identify bankrupt firms approximately 95% of the time.

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Analysis Multiple Discriminant Analysis - A technique used to develop a measurement of solvency, sometimes called a Z Score. Edward Altman developed a Z Score formula that was able to identify bankrupt firms approximately 95% of the time.

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Analysis Example - If the Altman Z score cut off for a credit worthy business is 2.7 or higher, would we accept the following client?

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Analysis Example - If the Altman Z score cut off for a credit worthy business is 2.7 or higher, would we accept the following client?

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Analysis Example - If the Altman Z score cut off for a credit worthy business is 2.7 or higher, would we accept the following client? A score above 2.7 indicates good credit.

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Credit Analysis  Credit analysis is only worth while if the expected savings exceed the cost.  Don’t undertake a full credit analysis unless the order is big enough to justify it.  Undertake a full credit analysis for the doubtful orders only.

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill The Credit Decision Credit Policy - Standards set to determine the amount and nature of credit to extend to customers.  Extending credit gives you the probability of making a profit, not the guarantee. There is still a chance of default.  Denying credit guarantees neither profit or loss.

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill The Credit Decision The credit decision and its probable payoffs Refuse credit Offer credit

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill The Credit Decision The credit decision and its probable payoffs Refuse credit Offer credit Customer pays = p Customer defaults = 1-p Payoff = 0

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill The Credit Decision The credit decision and its probable payoffs Refuse credit Offer credit Customer pays = p Customer defaults = 1-p Payoff = Rev - Cost Payoff = - Cost Payoff = 0

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill The Credit Decision  Based on the probability of payoffs, the expected profit can be expressed as:

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill The Credit Decision  Based on the probability of payoffs, the expected profit can be expressed as:

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill The Credit Decision  Based on the probability of payoffs, the expected profit can be expressed as:  The break even probability of collection is:

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Collection Policy Collection Policy - Procedures to collect and monitor receivables. Aging Schedule - Classification of accounts receivable by time outstanding.

© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Collection Policy Sample aging schedule for accounts receivable