RTI,Chennai Cash Flow Management Learning Objective Given the inputs on cash flow planning, cash flow cycle time and financing the cash flow by various ways, the trainees will be able to examine whether the cash management is efficiently and effectively made by the auditee as evaluated by the instructor.

RTI,Chennai Objectives of CF Management Accelerating cash inflows Delaying cash outflows Investing surplus cash Borrowing cash at economical rates Maintaining optimum cash balane

RTI,Chennai Disbursement cycle Total time between when an obligation occurs and when it is paid  Possible ways to increase cycle time  Mailing cheques  Arranging payment thro’ remote bank  Using credit cards

RTI,Chennai Receipt cycle Time lag between when products are delivered and when payments are received –Offering discounts for earlier payments –Levy surcharge for belated payments –Sending reminders to customers –Customer friendly payments system-like collection centers/cheque collection box –Arranging for collection at customer premises

RTI,Chennai Cash flow planning Transaction amounts Precautionary amounts Speculative amounts Financial amounts

RTI,Chennai Short term financing Bank Finance Line of credit Asset based borrowing (Eg. Over draft, cash credit, export credit, factoring, assignment, inventory financing)

RTI,Chennai Warning signs of CF distress Very low cash balance Inventory is accumulating Debtors on the increase Suppliers refusing credit Frequent purchases of less quantity

RTI,Chennai Z score Z=1.2(Current Ratio) +1.4(Reserves & surplus/Total assets) +3.3(EBIT/Total assets) +0.6(Market value of equity/book debts)+0.999(Sales/Total assets) If Z score is < 1.8 near bankruptcy If Z score is between 1.81 and 2.99 cash crunch If Z score is > 3.0 comfortable cash position