WORKING CAPITAL MANAGEMENT

NOOR HAMIZAH BT HAJI BAHARIN (Introduction) NURUL ARAFAH BT ISHAK (Current assets) TEO KIEN HEE IRAJ NIKOOKAR( SHORT TERM FINANCING) OMID ASHOORI MEHDI HAJ ALI LARIJANI ATHIRA BT (Cash conservation cycle ) SUHAILI BT SAADON

INTRODUCTION OF WORKING CAPITAL MANAGEMENT

PRESENT BY :

NOOR HAMIZAH BTE BAHARIN (MA101315)

INTRODUCTION
The expression working capital is used in different senses by different people. Strictly speaking, all capital supplied by shareholders and creditors to a business enterprise works by earning revenues, providing finance for expansion, being invested in new assets and used up in discharging obligations incurred in the course of everyday operations.

NOOR HAMIZAH

The of working capital is associated with current assets, which include cash, near-cash ( eg: short term securities ) and trading non-monetary assets such as stocks, work-in-progress and debtors.

concept

A proportion of funds required for investment in these assets is provided by suppliers and short term creditors, while the remainder the difference between the total current assets and the total current liabilities must be financed from permanent capital.
NOOR HAMIZAH

DEFINITION
A firms working capital comprises of its current assets minus current liabilities. Current assets comprise principally of inventories, accounts receivables, cash and short term securities. These assets are termed current as the assets concerned can be converted into cash within one year or less. Current liabilities, on the other hand, comprise principally of account payable, accruals, short-term borrowing and taxes payable. These are obligation owed by the firm that are expected to come due within one year or less. Net working capital is defined as the differences between the firms current assets and current liabilities.
NOOR HAMIZAH

Working capital, therefore, can be defined as the net balance of current operating assets or the surplus of current assets over current liabilities. This is a usual standard definition.

A balance sheet is a static picture of net assets employed in a company, and how they are financed, at a given point in time

NOOR HAMIZAH

SAMPLE OF BALANCE SHEET

BENEFIT
To keep stocks and debtors at the lowest possible level To obtain the largest consistent with the efficient possible amount of operation of the business. A credit that the suppliers are willing to grant, chronic shortage of stock or an unwillingness to extend the consistent with usual credit terms to customers optimum buying could seriously hinder the principles. running of the company

NOOR HAMIZAH

CURRENT ASSETS AND CURRENT LIABILITIES

PRESENT BY :

NURUL ARAFAH ISHAK

TEO KIEN HEE

Lecture Agenda
Learning Objectives Important Terms Cash Management Reasons for Holding Cash Determining the Optimal Cash Balance Cash Management Techniques Accounts Receivable Management The Credit Decision Credit Policies The Collection Process Inventory Management Inventory Management Approaches Evaluating Inventory Management
TEO KIEN HEE

LEARNING OBJECTIVES
You should understand the following:

How to manage individual asset items, such as cash, receivables, and inventory The nature of the major sources of short-term financing, such as trade credit, bank loans, factoring arrangements, and money market securities The fact that in evaluating current asset and current liability decisions, the final decision rests on the standard problem of trading off expected benefits and potential costs
TEO KIEN HEE

Cash and Marketable Securities

Working Capital Management Current Assets and Current Liabilities

TEO KIEN HEE

Working Capital Management: An Overview

Gross Working Capital : (Current Assets) New Working Capital : (Current Assets - Current Liabilities) Working Capital Management Involves investing in current assets and financing of current assets:
Current Asset Investment

TEO KIEN HEE

Current Liabilities

Long-Term Financing

Reasons for Holding Cash

Transactions motive -To meet cash needs that normally arise from doing business Precautionary motive -To meet any unexpected need for cash Speculative motive -To take advantage of potential profit making situations
TEO KIEN HEE

Determining the Optimal Cash Balance

The optimal cash balance is the amount of cash that balances the risks of illiquidity against the sacrifice in expected return that is associated with maintaining cash. Differs substantially across firms Firms with predictable cash flows will have lower optimal cash balance requirement Firms with excess borrowing capacity (unused line of credit for example) can hold less cash.
TEO KIEN HEE

Cash Management Techniques

Cash flow synchronization can free up cash (and lower the amount of capital a firm requires) This is done by: Speeding Up Cash Inflows : Bill clients earlier each month Increase cash sales through incentives Encourage customers to pay using electronic payments systems such as direct deposit, automatic debit, debit card, rather than cheque. Delaying Outflows : Arrange with suppliers for more liberal trade credit terms (net 40 rather than net 30 for example) Paying employees once a month rather than twice.
TEO KIEN HEE

Cash Managements

Float
Float is the time that elapses between the time the paying firm initiates payment, and the time the funds are available for use by the receiving firm. Float has been reduced or eliminated through: Debit cards Preauthorized payments Electronic funds transfer (EFT) and electronic data interchange (EDI) systems.

TEO KIEN HEE

Current Asset Investment Policy

Everything else remaining the same, higher levels of current assets mean lower risk and lower expected return Lower Risk Greater ability to meet short-run obligations. Lower Return Cash and marketable securities typically yield low returns. Furthermore, when current assets are increased, additional financing costs will be incurred thereby lowering returns. Lower levels of current assets result in opposite effects.

TEO KIEN HEE

Alternative Current Asset Investment Policies

Current Asset (millions of $)
14 12 10 8 6 4 2 0 0 20 40 Sales (millions of dollars)

Conservative - low risk Moderate Aggressive - high risk

TEO KIEN HEE

Temporary vs. Permanent Investment in Current Assets

Temporary Investment Commonly, firms experience short-run fluctuations in current assets. For example, retail department stores will have high levels of inventory around Thanksgiving. In January, the inventory should be low.

Firms always have some minimum level of investment in current assets (i.e., a permanent investment). As a firm grows over time, the level of permanent current assets also grows (e.g., a supermarket chain with 70 stores will have more permanent inventory than a chain with 4 stores). TEO KIEN HEE

Permanent Investment

Temporary and Permanent Current Assets

Millions of dollars

14 12 10 8 6 4 2 0

Temporary Fluctuations in Current Assets

Permanent Current Assets

12

15

18

Time Period TEO KIEN HEE

21

Accounts Receivable
Working Capital Management Current Assets and Current Liabilities

Nurul Arafah

Accounts Receivable
1. The decision to extend credit to customers has significant cash flow and credit risk implications for the firm. Firms often dont have a choice, if the availability of credit is an important factor in the customers purchase decision process (if competitors offer credit, then the firm must at least match those credit terms, and then choose to compete on another basis.) 2. The second decision (once the firm has decided to extend credit) is to determine which customers will be granted credit. 3. The credit terms must be established. 4. The collection process must be decided.
Nurul Arafah

Nurul Arafah

The Credit Decision

The decision to extend credit is determined:

Nature Of The Product Sold

The Industry

Practices Of Competito rs

Credit Analysis
The process designed to assess the risk of non-payment by potential customers, which involves collecting information about potential customers with respect to their credit history, their ability to make payments as reflected in their expected cash flows, and their overall financial stability. From the firms point of view: Often willing to extend credit on terms better than a bank because: The potential for the firm developing a good customer into the future, and Losses are limited to production costs in the case of default.
Nurul Arafah

Credit Analysis
Variables that are weighed in the credit analysis process:
Capacity the customers ability to pay
Collateral the security that could be seized to satisfy payment

Character the customers willingness to pay

Conditions the state of the economy.

Nurul Arafah

Credit Policies
The firm must choose what terms of credit to offer its customers. Terms of credit include: The due date The discount amount (if any) Options include: Cash on delivery (COD) Cash before delivery (CBD) Net 30, net 40 - no incentive for early payment 2/10 net 30 - a 2% discount for early payment
Nurul Arafah

Change in Credit Policy Analysis When extending more lenient credit terms the firm hopes to increase revenues through the sale of more units, and perhaps even charge higher prices. These benefits are offset by financing costs and the increased risk of nonpayment.
Nurul Arafah

The Collection Process

The firm must monitor outstanding A/R by customer and by category. The firm must then determine what action it will take when late payments occur. Charge interest on outstanding balances Notify customer of arrears (email, mail, telephone) Actions on unpaid amounts: Allow no further purchases on credit Choose from a number of additional options to collect: 1. Take legal action 2. Sell receivable to a collection agency 3. Write off the debt as uncollectable.
Nurul Arafah

FACTORING
It may not be cost-effective for a firm to manage the collection process itself.

Factoring arrangements are the sale of a firms receivables, at a discount, to a financial company called a factor, which specializes in collections, or the out-sourcing of the collections to a factor.

Nurul Arafah

INVENTORY
Working Capital Management Current Assets and Current Liabilities

Nurul Arafah

Inventory
The level of inventory a firm holds is a trade off between benefits and costs: Benefits of Holding Inventory: Take advantage of large-volume discounts Reduce the probability of production disruptions because of lack of inventory Minimize lost sales because of stock-outs Costs of Holding Inventory: Financing costs associated with inventory investment Storage, handling, insurance, spoilage and obsolescence costs. Nurul Arafah

Types Of Inventory Costs

Carrying Costs storage and handling costs, insurance, property taxes, depreciation, and obsolescence.
Ordering Costs cost of placing orders, shipping, and handling costs. Costs Of Running Short loss of sales or customer goodwill, and the disruption of production schedules.

Reducing the average amount of inventory generally reduces carrying costs, increases ordering costs, and may increase the costs of running short.
Nurul Arafah

SHORT-TERM FINANCING
Presented By:

Iraj Nikookar
Omid Ashoori

Mehdi Haj Ali Larijani

Short-term Financing

What is the ShortTerm Financing?

Financing that will be repaid in one year or less. Short-term financing may be used to meet seasonal and temporary fluctuations in funds position as well as to meet longterm needs. For Example, Providing : 1) Additional Working Capital 2) Finance current assets (such as receivables and inventory) 3) Interim financing for a long-term project until long-term financing is arranged

Iraj Nikookar

Why do we Choose Short-Term Financing?

SPEED:
A Short-term loan can be obtained much faster than long-term credit. Lenders will insist on a more thorough financial examination before extending long-term credit. Therefore ,if founds are needed in a hurry ,the firm should look to the short-term market.

FELEXIBILITY:
If its needs for funds are seasonal or cyclical , a firm may not want to commit itself to long-term debt for three main reasons: 1) Flotation costs are higher for long-term debt than for short-term credit 2) Although, long-term debt can be repaid early, provided the loan agreement includes a prepayment provision, prepayment penalties can be expensive. 3) Long-term loan agreements always contain provisions or covenants, which constraint the firms future actions.
Iraj Nikookar

Cost of Long-Term Vs Short Term Debt

Interest rates are generally lower on short-term debt. Thus, under normal conditions, interest costs at the time the founds are obtained will be lower if the firm borrows on a short-term rather than long-term basis.

Risk of Long-Term Vs Short-Term Debt

Even though short-term rates are often lower than long-term rates, short-term credit is riskier for two reasons: 1) If a firm borrows on a long-term basis. Its interest costs will be relatively stable over time, but if it uses short-term credit, its interest expense will fluctuate widely, at times going quite high. 2) If a firm borrows heavily on a short-term basis, a temporary recession may render it unable to repay this debt. If the borrower is in a weak financial position, the lender may not extend the loan, which could force the firm into bankruptcy.
Iraj Nikookar

Source of Short-Term Financing

1. 2. 3. 4. 5.

Trade Credit Bank Loans Commercial Finance Loans Commercial Paper Receivable Financing

Iraj Nikookar

The different sources merits of short-term financing that should be considered by focusing on:
1) Cost 2) Effect on financial ratios 3) Effect on credit rating 4) Risk (reliability of the source of funds for future borrowing) 5) Restrictions 6) Flexibility 7) Expected money market conditions 8) Inflation rate 9) Company profitability and liquidity positions 10) Stability and maturity of operations 11) Tax rate
Iraj Nikookar

Source of Short-Term Financing Trade Credit

Trade credit (accounts payable) are balances owed by your company to suppliers.
The Advantages: 1) Least Expensive Form of Financing Inventory 2) readily available, since suppliers want business 3) no collateral is required 4) there is no interest charge 5) it is likely to be extended if the company gets into financial trouble
Omid Ashoori

Trade Credit ( Cont.)

The company purchases $500 worth of merchandise per day from suppliers. The terms of purchase are net/60, and the company pays on time. The accounts payable balance is: $500 per day x 60 days = $ 30,000 The company should typically take advantage of a cash discount offered for early payment because failing to do so results in a high opportunity cost. The cost of not taking a discount equals:
360
Omid Ashoori

Trade Credit ( Cont.)

The company buys $1,000 in merchandise on terms of 2/10, net/30. The company fails to take the discount and pays the bill on the thirtieth day. The cost of the discount is:
$20 360 x = 36.7% $980 20

The company would be better off taking the discount even if it needed to borrow the money from the bank, since the opportunity cost is 36.7 percent. The interest rate on a bank loan would be far less.

Omid Ashoori

Source of Short-Term Financing Bank Loan

Bank Loans are an important source of short-term credit. When a bank loan is approved a promissory note is signed. It Specifies: 1) The Amount borrowed. 2) The Percentage interest rate 3) The repayment schedule 4) The collateral 5) Any other conditions to which the parties have agreed Bank financing may take the following forms: 1) Unsecured loans 5) Secured loans 2) Lines of credit 6) Letters of credit 3) Revolving credit 4) Installment loans
Omid Ashoori

Bank Loans (CONT.)

Unsecured Loans: Most short-term unsecured (uncollateralized) loans
are self-liquidating. This kind of loan is recommended if the company has an excellent credit rating. It is usually used to finance projects having quick cash flows and is appropriate if the company has immediate cash and can either repay the loan in the near future or quickly obtain longer-term financing.

Secured Loans: If the company's credit rating is deficient, the bank may
lend money only on a secured basis. Collateral can take many forms, including inventory, marketable securities, or fixed assets. Even if the company is able to obtain an unsecured loan, it may be better off taking a collateralized loan at a lower interest rate.

Lines of Credit. Under a line of credit, the bank agrees to lend money up to
a specified amount on a recurring basis. The bank typically charges a commitment fee on the amount of the unused credit line. Credit lines are typically established for a one-year period and may be renewed annually.
Omid Ashoori

Bank Loans (CONT.)

The company borrows $200,000 and is required to keep a 12 percent compensating balance. It also has an unused line of credit of $100,000, for which a 10 percent compensating balance is required. The minimum balance that must be maintained is:
($200,00 0.12) ($100,000 0.1) $24,000 $10,000 $34,000

A line of credit is typically decided upon prior to the actual borrowing. In the days between the arrangement for the loan and the actual borrowing, interest rates may change. Therefore, the agreement will stipulate the loan is at the prime interest rate prevailing when the loan is extended plus a risk premium.
Omid Ashoori

Bank Loans (CONT.)

Letter Of Credit is a document issued by a bank guaranteeing the payment of a
customer's drafts up to a specified amount for a designated time period. In effect, the bank's credit is substituted for that of the buyer, minimizing the seller's risk. Payment may be made on submission of proof of shipment or other performance. Letters of credit are used primarily in international trade. There are different types of letters of credit: 1) Commercial letter of credit 2) confirmed letter of credit

Revolving Credit. A revolving credit is an agreement between the bank and the
borrower in which the bank contracts to make loans up to a specified ceiling within a prescribed time period. With revolving credit, notes are short term (typically ninety days). When part of the loan is paid, an amount equal to the repayment may again be borrowed under the terms of the agreement. Advantages are the readily available credit and few restrictions compared to line-of-credit agreements. A major disadvantage may be restrictions imposed by the bank.
Mehdi Haj ali Larijani

Bank Loans (CONT.)

Installment Loans: An installment loan requires monthly
payments of interest and principal. When the principal on the loan decreases sufficiently, you may be able to refinance at a lower interest rate. The advantage of this kind of loan is that it may be tailored to satisfy seasonal financing needs. Interest: Interest on a loan may be paid either at maturity (ordinary interest) or in advance (discounting the loan). When interest is paid in advance, the loan proceeds are reduced and the effective (true) interest rate is increased.

Mehdi Haj ali Larijani

Bank Loans-Interest (Example)

Example 1:

The company borrows $30,000 at 16 percent interest per annum and repays the loan one year later. The interest is $30,000 .16 = $4,800. The effective interest rate is 16 percent ($4,800/$30,000).
Example 2: Assume the same facts as in the prior example, except the note is discounted. The effective interest rate increases as follows: Proceeds = principle Interest = $30.000 -$4.800 = $25.200 Effective Interest rate = Interest / Proceeds =$4.800 / $25.200 = 19% A compensating balance will increase the effective interest rate.
Mehdi Haj ali Larijani

Bank Loans-Interest (Example Cont.)

The effective interest rate for a one-year, $600,000 loan that has a nominal interest rate of 19 percent with interest due at maturity and requiring a 15 percent compensating balance is:
0.19 $600,000 = 10.15 $600,000 ,%

=22.4%
Assume the same facts as in the prior example, except that the loan is discounted. The effective interest rate is: Effective interest rate (with discount) equals:
0.19 $600,000 = 0.85$600,000 114,000 ,%

=28.8 %
Mehdi Haj ali Larijani

Source of Short-Term Financing

Commercial Finance Loans:
When credit is unavailable from a bank, the company may have to go to a commercial finance company, which typically charges a higher interest rate than the bank and requires collateral. Typically, the value of the collateral is greater than the balance of the loan and may consist of accounts receivable, inventories, and fixed assets. Commercial finance companies also finance the installment purchases of industrial equipment. A portion of their financing is sometimes obtained through commercial bank borrowing at wholesale rates.

Commercial Paper:
Commercial paper is a short-term unsecured obligation with a maturity ranging from 2 to 270 days, issued by companies to investors with temporarily idle cash. Commercial paper can be issued only if the company possesses a very high credit rating; therefore, the interest rate is less than that of a bank loan, typically onehalf percent below the prime interest rate. Commercial paper is sold at a discount (below face value), with the interest immediately deducted from the face of the note by the creditor; however, the company pays the full face value.
Mehdi Haj ali Larijani

Commercial Papers (Example)

A company's balance sheet appears below. ASSETS Current assets $ 540,000 Fixed assets $800,000 Total assets $1,340,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 100,000 Commercial paper $650,000 Total current liabilities $ 750,000 Long-term liabilities $260,000 Total liabilities $1,010,000 Stockholders' equity $330,000 Total liabilities and stockholders' equity $1,340,000 The amount of commercial paper issued by the company is a high percentage of both its current liabilities, 86.7% ($650,000/$750,000), and its total liabilities, 64.4% ($650,000/$1,010,000). Because bank loans are minimal, the company may want to do more bank borrowing and less commercial paper financing. In the event of a money market squeeze, the company may find it advantageous to have a working relationship with a bank.
Mehdi Haj ali Larijani

Source of Short-Term Receivable for Financing

In accounts receivable financing, the accounts receivable serve as security for the loan as well as the source of repayment. Financing backed by accounts receivable generally takes place when: Receivables are at least $25,000. Sales are at least $250,000. Individual receivables are at least $100. Receivables apply to selling merchandise rather than rendering services. Customers are financially strong. Sales returns are low. The buyer receives title to the goods at shipment. Receivable financing has several advantages. It eliminates the need to issue bonds or stock to obtain a recurring cash flow. Its drawback is the high administrative costs of monitoring many small accounts.

Mehdi Haj ali Larijani

Receivable for Financing (CONT.)

Accounts receivable may be financed under: 1) Factoring agreement 2) Assignment (pledging) arrangement Factoring is the outright sale of accounts receivable to a bank or finance company without recourse; the purchaser takes all credit and collection risks. The proceeds received by the seller are equal to the face value of the receivables less the commission charge, which is usually 2 to 4 percent higher than the prime interest rate. Factoring Pros and Cons: Advantages include: 1. Offering immediate Cash 2. Reducing Overhead 3. Providing Financial Advice 4. Strengthening the companys balance sheet position Disadvantages include: 1. High cost 2. Negative impression left with customers
Mehdi Haj ali Larijani

Receivable for Financing (CONT.)

Assignment ownership of the accounts receivable is not transferred. Instead, receivables are given to a finance company with recourse. The finance company usually advances between 50 and 85 percent of the face value of the receivables in cash; your company is responsible for a service charge, interest on the advance, and any resulting bad debt losses, and continues to receive customer remissions. Assignment Pros and Cons : Advantages Include: 1. Providing immediate cash 2. Making cash on a seasonal basis 3. Avoiding negative customer feeling Disadvantages include: 1. High cost 2. Continuing of administrative costs 3. Bearing of credit risk
Mehdi Haj ali Larijani

CASH CONVERSION CYCLE

Present By : SUHAILI BT SAADON ATHIRA BT ABDULLAH

CASH CONVERSION CYCLE

The cash conversion cycle is a measure of working capital efficiency, often giving valuable clues about the underlying health of a business. The cycle measures the average number of days that working capital is invested in the operating cycle. It starts by adding days inventory outstanding (DIO) to days sales outstanding (DSO).

Suhaili saadon

 This is because a company "invests" its cash to

acquire/build inventory, but does not collect cash until the inventory is sold and the accounts receivable are

finally collected.
However, days payable outstanding (DPO), which essentially represent loans from vendors to the company, are subtracted to help offset working capital needs.

CCC = DIO + DSO - DPO

Suhaili saadon

EXAMPLE

CASH CONVERSION CYCLE MODEL

The model measures the length of time it takes for cash invested in the firms current assets to be returned.

THE PROCESS
The firm starts with some cash & receive information on demand for its product

Based on this forecast the firms order materials to produce inventories of finished goods (a current assets)

When the firm orders materials, it creates an account payable (a current liability)

After sale, an account receivable (pay directly or promise pay

Suhaili saadon

EXAMPLE

Suhaili saadon

INFLATION
Increase in the price of factors of production.

INDUSTRY INFLUENCE FACTOR INFLUENCE CASH CONVERSION CYCLE

The production process & nature of industry must considered on examining working capital requirement.

GROWTH
-Increasing investment in working capital. -Not balanced by increasing sale revenue until extra sales worked their way right through the cycle. -Overtrading may occur as increased in current asset not supported by new funds. -Extreme consequence will to sell fixed asset to repay liabilities.

Suhaili saadon

EXAMPLE

Suhaili saadon

CASH CONVERSION CYCLE CASH Collection CREDITORS Purchase RAW MATERIALS

DEBTOR

Sales

Production

FINISHED GOODS

WORK IN PROGRESS

Cycle can be reduced by either 1) Improving production efficiency 2) Improving finished goods 3) Improving debtor (minimising) & creditors period (maximising)

Suhaili saadon

EXAMPLE

Suhaili saadon

Marketable Securities
Can be sold short notice The goal of holding similar to holding cash Serve a substitute for cash & temporary investment for funds

Inventory Management
Determining how many inventories to hold when to place orders & how many units to order.

C A S H

C O N V E R S I O N

Inventory Cost

C Y C L E

Inventories
1) Raw Materials 2) Work-in Process 3) Finished Goods

1) Carrying cost -increase as the level of inventories rises. 2) Ordering costs -decline with larger inventory holding. 3) Stock-out costs -decline with larger inventory holding.

Inventory Control System

1) Red-line method - computerised inventory control system to help keep track of actual inventory levels. 2) Two-bin method - to ensure that inventory levels are adjusted as sales change. 3) Just-in time (JIT) system - to hold down inventory costs & simultaneously. - to improve the production process.

Account Receivables
-Balance due from customers -Firms use aging schedule & the day sales outstanding (DSO)

Suhaili saadon

EXAMPLE

Suhaili saadon

CASH CONVERSION CYCLE

ATHIRA

CASH CONVERSION CYCLE DERIVATION

Cash conversion cycle is the length of time between
the payment of creditors (accounts payable) and the receipt of cash from debtors (accounts receivable)

CCC = DIO + DSO DPO

ATHIRA

i. Days Inventory Outstanding (DIO):

Average of days takes to sell the entire inventory. The smaller number the better.
DIO = Average inventory/ COGS per day Average Inventory = (beginning inventory +ending inventory) /n

Inventory RM 2,100,000 Cost of Goods Sold (COGS) for a year RM17,500,000 DIO = RM 2,100,000 x 365 = 43.8 days RM17,500,000

ATHIRA

ii. Days Sales Outstanding (DSO): The number of days needed to collect on sales and involves average Account Receivable (AR). Smaller is better.
DIO = Average inventory/ Revenue per day Average Inventory = (beginning inventory +ending inventory) /n

Debtors RM 2,550,000 Sales RM 30,000,000 DSO = RM 2,550,000 x 365 = 31.03 days RM 30,000,000
ATHIRA

 Days Payable Outstanding (DPO):

Involves the companys payment of its own bills or AP. If this can be maximized, the company holds onto cash longer, maximizing its investment potential, a longer DPO is better.
DPO = Average AP/ COGS per day Average AP = (beginning AP +ending AP) /2

Account Payable RM 800,000 COSG for a year RM17,500,000 DPO = RM 800,000 x 365 = 16.69 days RM17,500,000 Hence, the cash conversion cycle is: CCC = DIO + DSO DPO CCC = 43.80 + 31.03 16.69 = 58.14 days

ATHIRA

ATHIRA

ATHIRA

ANY QUESTION ?

THANK YOU