Optimization of the company's cash flow
This book is about the company's treasuries and financial management, more specifically; it shows how a company can manage its treasury in an efficient and short way. This book is about the company's treasuries and financial management, more specifically; it shows how a company can manage its treasury in an efficient and short way.
Figure n°1: Determination of optimal capital compromise between solvency and profitability. The C function passes through a minimum when its derivative with respect to the Working Capital Fund is zero. This method of calculation is thus similar to the previous. The same criticism can be formulated in its regard. (c) Optimize the use of the Working Capital Fund. This approach is original to the extent that it reverses the terms of problem (1). The selected objective is maximization of benefit based on a constraint, the Fund available bearing or 'cash '. In these circumstances, for example if the production function is represented by: C = 20 + 5 (x) (Total cost = fixed costs + unit variable costs multiply by the quantity produced), and the available capital funds and 150 maximum production will be: 150 = 20 + 5(x) x = 26 units If it is assumed that the unit selling price is 10, and that the revenue (or turnover) function has the form: R = 10 (x) The maximum benefit allowed by the available working capital fund will be: P = R - C = 10 x - (20 + 5 x) or P = 110 (1) The marginal benefit will represent the maximum price that can pay the company for additional funds required for the production of one unit more. As can be seen, the interest of this model lies in its didactical value. It has the merit to describe the relationships between the operational needs and the Working Capital Fund. But it seems devoid of practical interest because the simplifying assumptions on which it is based, as well as elsewhere, because the methodology adopted. We can take the same approach in the context of 'mathematically' more complex situations: When functions are not linear (the cost equation becomes Page 28 of 124
C = ax² + bx + c When the demand and costs are uncertain (introduction of probability distributions relating to the application and costs); When the firm decided to stockpile; When the firm produces two products, or more... This model, the same interests and the same limitations are attached only to the above. Operationally no decisive progress was actually performed. 2.2- BANK METHOD OF CALCULATION OF THE WORKING CAPITAL FUND REQUIREMENT. Having outlined the principles of the method we show its limits. (a) THE PRINCIPLES OF THE METHOD. The value of the needs in working capital of a company on a fixed date is equal to the difference between the amount of its cyclical needs and its cyclic resources: Working capital needs = cyclical needs - cyclic resources The difficulty of calculating is, on the one hand, the distinction that must be between the posts at the bottom of the balance sheet that are directly related to the operating cycle and those who are not, and, secondly, in various adjustments to made indispensable by the abnormal considered position value. Thus, a post from the bottom of the balance sheet will be included in the calculation of working capital needs if it has the following characteristics: -It renews itself cyclically. -It is related to the operation of the business cycle; -It corresponds to a normal activity of the company. In light of these remarks the bottom of the balance sheet is as follows in table n°2: Table n°2: Company’s composition of balance NEEDS I. CYSLICAL NEEDS : II. RESSOURCES CYCLICAL Resources -Values of operating: normal stock. -Customers. -Notes receivable: part not available immediately (effects to more than 3 months). -Various and regularization accounts: claims related to the cycle manufacturing (payments tax, VAT to be recovered). -Suppliers and notes payable: share of debts to suppliers of materials and goods whose duration is normal. -Various and regularization accounts: part of the cyclerelated debts - Manufacture-sale purchase (provision for tax on companies, VAT payable, payroll...) whose duration is normal. Page 29 of 124
- Page 1 and 2: Page 1 of 124
- Page 3 and 4: The Optimization of the Cash-Treasu
- Page 5 and 6: FOREWORD Nor obtaining the diploma
- Page 7 and 8: Page 7 of 124
- Page 9 and 10: This project research is dedicated
- Page 11 and 12: LIST OF ACRONYMS AND ABBREVIATION
- Page 13 and 14: Figure n°1: Determination of the o
- Page 15 and 16: TABLE OF CONTENTS Foreword ........
- Page 17 and 18: SECOND PART: THE PRACTICE OF THE CA
- Page 19 and 20: ABSTRACT Inside a world full of ban
- Page 21 and 22: In addition, the monetary risk is a
- Page 23 and 24: A good financial situation is chara
- Page 25 and 26: Experience and observation prove th
- Page 27: Whereas part of stocks was practica
- Page 31 and 32: The “Stocks” flow time: Average
- Page 33 and 34: It indicates to what extent the rea
- Page 35 and 36: RESULTS + FINANCIAL INTERESTS / FIN
- Page 37 and 38: ANNUAL SALES H.T / NET FIXED ASSETS
- Page 39 and 40: 4 - LIMITS THE PREDICTIVE VALUE OF
- Page 41 and 42: This opposition led to the establis
- Page 43 and 44: It will similarly be to calculate t
- Page 45 and 46: However, this document synthesizes
- Page 47 and 48: The cash has then for each day (or
- Page 49 and 50: (b) SHORT-TERM DATA: Beyond the ver
- Page 51 and 52: These three presentations are well
- Page 53 and 54: Manage cash consists, in the tradit
- Page 55 and 56: Anyway many authors have developed
- Page 57 and 58: Either they consist on interest or
- Page 59 and 60: (a) Economies of scale in the deten
- Page 61 and 62: Type of Risk Analyze the Risk Evalu
- Page 63 and 64: They may have originated an investm
- Page 65 and 66: I. PRESENTATION OF THE ANALYSIS MOD
- Page 67 and 68: II. DATA COLLECTION TOOLS For what
- Page 69 and 70: Part II: The Practice of the Cash-
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- Page 73 and 74: 8. Development: Currently, this dep
- Page 75 and 76: B. Dynamical competition While the
- Page 77 and 78: 1.2 - The existence and the importa
Figure n°1: Determination <strong>of</strong> optimal capital compromise between solvency and pr<strong>of</strong>itability.<br />
The C function passes through a minimum when its derivative with respect to <strong>the</strong> Working Capital Fund is zero. This<br />
method <strong>of</strong> calculation is thus similar to <strong>the</strong> previous. The same criticism can be formulated in its regard.<br />
(c) Optimize <strong>the</strong> use <strong>of</strong> <strong>the</strong> Working Capital Fund.<br />
This approach is original to <strong>the</strong> extent that it reverses <strong>the</strong> terms <strong>of</strong> problem (1). The selected objective is maximization<br />
<strong>of</strong> benefit based on a constraint, <strong>the</strong> Fund available bearing or '<strong>cash</strong> '. In <strong>the</strong>se circumstances, for example if <strong>the</strong><br />
production function is represented by:<br />
C = 20 + 5 (x)<br />
(Total cost = fixed costs + unit variable costs multiply by <strong>the</strong> quantity produced), and <strong>the</strong> available capital funds and<br />
150 maximum production will be:<br />
150 = 20 + 5(x)<br />
x = 26 units<br />
If it is assumed that <strong>the</strong> unit selling price is 10, and that <strong>the</strong> revenue (or turnover) function has <strong>the</strong> form:<br />
R = 10 (x)<br />
The maximum benefit allowed by <strong>the</strong> available working capital fund will be:<br />
P = R - C = 10 x - (20 + 5 x) or P = 110 (1)<br />
The marginal benefit will represent <strong>the</strong> maximum price that can pay <strong>the</strong> company for additional funds required for<br />
<strong>the</strong> production <strong>of</strong> one unit more.<br />
As can be seen, <strong>the</strong> interest <strong>of</strong> this model lies in its didactical value. It has <strong>the</strong> merit to describe <strong>the</strong> relationships<br />
between <strong>the</strong> operational needs and <strong>the</strong> Working Capital Fund. But it seems devoid <strong>of</strong> practical interest because <strong>the</strong><br />
simplifying assumptions on which it is based, as well as elsewhere, because <strong>the</strong> methodology adopted. We can take<br />
<strong>the</strong> same approach in <strong>the</strong> context <strong>of</strong> 'ma<strong>the</strong>matically' more complex situations:<br />
When functions are not linear (<strong>the</strong> cost equation becomes<br />
Page 28 <strong>of</strong> 124