1. CURRENT ASSETS MANAGEMENT: VALUE BASED WORKING CAPITAL DECISIONS

2. CURRENT ASSETS MANAGEMENT: VALUE BASED WORKING CAPITAL DECISIONS
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5 lectures + 1 exam (test)
Next lecture: 14th October.
J.E. Graham, Firm Value and Optimal Levels of Liquidity, Routledge 2001.
T. S. Maness, J. T. Zietlow, Short-Term Financial Management, S-W Learning 2005.

3. Basic financial aim of the firm
Firm value maximization:
Where: FCFn = free cash flows,
CC = cost of capital financing the firm (WACC)
n = period in which FCFn will be generated

5. FCF – how to calculate?
CC – cost of capital (cost of money), how to value?

6. Cash cycle & Operating Cycle

8. Cash cycle & Operating Cycle
Operating cycle - the time period from commitment of cash for purchases until the collection of receivables resulting from the sale of goods/services.
Operating cycle = Inventory period + A/cs receivable period
Cash cycle - the time period from the actual outlay of cash for purchases until the collection of receivables.
Cash cycle = Operating cycle - A/cs payable period

10. Example: Cash cycle & Operating Cycle
The following information has been provided:
CR = 720
Inventory = 60
Accounts receivable = 80
Accounts payable = 50
Calculate OKZAP (IP), DSO, OOSZwD, CO, CKG.
If we know that operating cash will be held on the level of 2 days sale, how much money will be tied in NWC (Net Working Capital)?

12. How changes in curent assets influence value?
CS: Inventory period = 35 days, Accounts receivable period = 26 days, accounts payable period = 20 days, Cash Revenues = 1440ooo, T=19%, calculate:
Assets, if FA = 800
Capital Involved
FCF0, FCF1-n, FCFn
IRR
Cost of Capital if D/(D+E) = 40%, kd = 10% & ke = ? kRF=7%, km=17%,
NPV
What will change if IP (OKZAP) is shorter? Longer?
What will change if ARP (DSO) is shorter? Longer?
What will change if APP (OOSZwD) is shorter? Longer?