1. Managing Finance and Budgets
Seminar 3

2. Seminar Three - Preparation
Read Chapters 5 and 16
Review key concepts:
Cash Flow Statement
Working Capital
Exercises 5.7 (pages 170-1) and 16.3 (page 540)

3. Seminar 2 - Activities During this seminar we will:
Review the key concepts and ideas from the lecture
Review Chapter 5 of the set book
Examine exercise 5.7 (pages 170-1)
Review Chapter 16 of the set book
Examine exercise 16.3 (page 540)

4. Some Starting Points Explain the difference between Cash and Profit.
Explain what is meant by the following:
Operating Activities
Returns from Investment
Servicing of Finances
Taxation
Capital Expenditure
Equity Dividends
Liquid Resources

5. The Cash-Flow Statement 1
Describe the structure of the Cash-Flow Statement.
State what is meant by the direct and indirect methods of deducing the Net Cash-Flow from the Operating Activities, explaining briefly the difference between them.

6. Diagrammatic representation of the cash flow statement
Equity dividends paid
Financing
Capital expenditure
Returns from investment and servicing of finance
Taxation
Management of liquid resources
Operating activities
Cash balance

7. Standard layout of the cash flow statement
plus or minus
equals
Increase or decrease in cash over the period
Net cash flow from operating activities
Returns from investment and servicing of finance
Taxation
Capital expenditure
Equity dividends paid
Management of liquid resource
Financing

8. The Cash-Flow Statement 2
For the Indirect method of calculating the net cash-flow, state the list of items, taken in order, that you would need to include in your calculations.
Exercise 5.7 p 169

9. The indirect method of deducing the net cash flow from the operating activities
plus
plus or minus
equals
Net cash flow from operating activities
Net operating profit
Depreciation expense
Increase (minus) or decrease (plus) in stock
Increase (minus) or decrease (plus) in debtors
Increase (plus) or decrease (minus) in creditors

10. Summarising… Describe the relationship(s) between: The Balance Sheet
The Cash-Flow Statement
The Profit & Loss Account

11. The relationship between the balance sheet, the profit and loss account and the cash flow statement
Balance sheet at the start of the accounting period
Owner’s claim
Cash
Balance sheet at the end of the accounting period
Cash flow statement
Profit and loss account

12. Managing Working Capital
Explain what is meant by “working capital”, describing some of the elements which affect it.
Describe the ‘working capital’ cycle.

13. The nature and purpose of working capital
Major elements
Major element
Stocks
Trade debtors
Cash (in hand and at bank)
Trade creditors
less
equals
Current liabilities
Working capital
Current assets

14. The working capital cycle
Cash sales
Trade creditors
Trade debtors
Finished goods
Cash/ bank overdraft
Work-in-progress
Raw materials

15. Managing Working Capital
Describe three financial ratios which can help a manager to monitor the flow of working capital, in relation to: stock levels, debtors and creditors.
Exercise 16.3

16. Managing Stocks
Describe the following methods of stock management: ABC system, economic order quantity, materials requirement planning, just-in-time method.

17. The management of stocks
Procedures and techniques
Forecasts of future demand
Financial ratios
Recording and reordering systems
Levels of control
Stock management models
Materials requirements planning (MRP) systems
Just-in-time (JIT) stock management

18. ABC method of analysing and controlling stock
Cumulative value of stock items (%)
Volume of stock items held (%) A B C

19. Patterns of stock movements over time
Stock level
Time

20. Stockholding and stock order costs
Ordering costs
Annual costs (£)
Total costs
Holding costs E
Stock level (units)

21. Managing Working Capital
State and describe criteria which can be used to help decide which customers should receive credit.

22. Which customers should receive credit?
The five Cs of credit
Capital
Capacity
Collateral
Conditions
Character

23. Comparison of actual and budgeted receipts over time for Example 16.3%
Time 10 20 30 40
June
July
August
September
Actual
Budgeted

24. The Operating Cash Cycle
Explain what is meant by the Operating Cash cycle, and discuss some methods a manager can use to control it.

25. The operating cash cycle
Purchase of goods on credit
Payment for goods
Sale of goods on credit
Cash received from debtors
Stockholding period
Operating cash cycle

26. Calculating the operating cash cycle
equals
minus
Operating cash cycle
Average payment period for creditors
Average settlement period for debtors
plus
Average stockholding period

27. Controlling the cash balance
Inner limit
Outer limit
Target cash balance
Cash balance (£)
Time (days) 2 8 6 4 9 5 3 1 7 11 12 10