Optimization of the company's cash flow

III.
Cash Needs
IV.
Resources cash
– Receivable: part available immediately.
-Securities. -Values of operation: hand voluntarily
surplus stock.
-Various and regularization accounts: claims not related
to the cycle manufacture-sale (advance to third parties).
-Cash and banks.
– Banks and funding agencies.
- Notes payable: mobilized credits, suppliers of capital
(share of debts of which the duration is abnormal).
-Various and regularization accounts: share of debts
related to the purchase, manufacture and sale cycle and
whose duration is abnormal, and debts not related to
this cycle (advances of others...)
b) LIMITATIONS OF THE METHOD.
The calculation of the needs in working capital from the balance sheet accounts has three essential defects. This
method does not allow to know the variations of the needs in working capital during the operating cycle. It gives the
date of preparation of the balance sheet the value of the needs. In addition, it seems very difficult to split the value
'normal' and 'abnormal' value of a balance sheet item. Finally, it is neither logical nor appropriate to make
adjustments of accounts in such a calculation. At wanting to "file the abnormal" one loses sight of the reality of the
operating cycle.
Anyway even a mean value of working capital needs remains insufficient data to resolve the problem of liquidity;
and, the following method is no exception to this last criticism.
2.3- THE METHOD OF CALCULATION OF WORKING CAPITAL REQUIREMENTS, KNOWN AS 'METHODS OF
ACCOUNTANTS'.
This method evaluates the needs not in absolute terms but in number of days of sales.
(a) PRINCIPLES OF THE PROCEDURE.
All positions of assets and current liabilities are characterized by two variables:
Time of rotation of the account (or "time to flow", noted TE), on the one hand,
And its ratio of structure, i.e. his report to turnover (or "weighting factor", noted PO), on the other hand.
Therefore, to assess the needs in working capital must be:
Calculate the time of rotation of each of the positions which constitute the values of bearing, TE;
Calculate structure ratios in each of these positions, PO;
Finally, express each item in days of sale, TE x PO.
We calculate the timing flows in days, by dividing the value of the position considered on the balance sheet by the
daily average amount of the corresponding operation flow (stocks and purchases, customers and sales, etc...). For
example, suppose that the average stock for the exercise of such society amounted to 3000; its average daily
purchases to be 100, and the average daily sales of 125; that finally the ' clients ' and 'suppliers' in the balance sheet
amounted respectively to 6250 and 6000. Yields:
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