Why cash flows are important??

Types of cashflow
Capital and revenue items Exceptional and unexceptional items Regular and irregular items

Working capital Cycle

It measures the period of time between cash outflow of material and cash inflow from customer

WORKING CAPITAL
Working capital is the difference between company's current assets and current liabilities

How to improve working capital

It can be improved by Reducing credit period of customer Reducing inventory level Reducing working capital cycle Increasing credit period from supplier Work In Progress fall Reduction in labour cost Reduction in Overheads.

EQUITY financing (long term financing)

Dividend are optional Dividend amount is optional Dividend is not tax exempt Increase overall share capital No impact on loan / liability (Right issue, Bonus issue, Script dividend, Share spilt)

 Right issue means before issue of new shares to public, company first offer it to existing shareholders because they have sight to purchase shares first. Bonus issue means company issue additional Shares without any payment to existing shareholder for eg. 1 share for every 5 shares Script dividend means payment of dividend in the form of shares rather than cash Share spilt means that just splitting shares in further shares.

DEBT Financing (long term financing)

Interest is compulsory Interest is tax exempt No impact on current share capital Increase in overall liability of company

Leasing (medium term financing)

FINANCE LEASE Type of lease in which there is a transfer of title OPERATING LEASE Type of lease in which lad only have a sight to operate the machine and there is no transfer of title

CASH BUDGETS
Cash budget is detailed forecast of cash receipt, payment and balances showing any defficiency or surplus.

Deficit (Reasons)
Cash flow problems I. Making losses Ii. Inflation Iii. Seasonal business Iv. One of item of expenditure

Deficit (corrective actions)

Overdraft Sale of short term investment Raising share capital Nature and timings of discretionary cash flow Inventory level Leading and lagging

Deficit (corrective actions)

A) Postponing capital expenditure B) accelerating future cash flow C) selling of investment or asset

Surplus (Actions)
Transaction motive (spend cash for regular expenditures) Precautionary motive (save money for safety purposes Speculative motive (money available for investment)

 Risk Position Government stock local authority stock. Other public corporation stock company mortgage loan stock Other Secured loans Unsecured loans Convertible loan stock Preference shares Equity shares

Types of bank borrowings

Overdraft Term loan Committed facility Revolving facility Uncommitted facility Banker's acceptance facility

BANK RELATIONSHIP
Debtor / creditor's relationship Mortgagor/Mortgagee relationship Fiduciary relationship

Banks Lending criteria

character of customer Ability to borrow and repay Margin of Profit Purpose of the borrowing. Amount of borrowing Repayment terms Insurance against the possibility of nonpayment

The role of Treasurer

Corporate financial objectives
Financial aims and strategy, Treasury policy, financial and treasury system

Liquidity management

Working capital and money transmission management, Banking arrangement, money management Funding policy and procedure, sources of fund and type of fund

Funding management

 Currency management Exposure policies and procedures, Exchange dealing, International monetary economics and exchange regulations Corporate finance Raising share capital, Mergers, acquisition, business sale, obtaining stock exchange listing

 Loan Repayment method Bullet (paid at the end of maturity) Baloon (Payment of a%of loan with major part remaining payable the end of matiuity paid Straight payment method. Payment equal amount of installment each period Types of interest rates Fixed interest rate Variable interest rate KIBOR+% LIBOR+%