...| 639407 | 683037 | 746491 | 717016 | 3.) Baumol Model assumes that the cash inflow is constant. Both equations find the optimal cash balance, but the Miller-Orr model goes a step further and finds the average cash balance. Miller-Orr gives a more accurate depiction of the optimal cash balance because it takes into account the upper and lower limits for the cash balance. A substitute for the baumol model could be the EOQ model because it finds a better target cash balance. 4.) If it was the minimum, we would be charged with a penalty, whereas if it was only an average, there is more flexibility. 5.) Baumol model= 78.76 Miller-Orr = 70.07 The range they consider normal is between 55 and 70, so only the Miller-Orr model fall into this range. 6.) A few changes that we recommend in our firm’s cash management is to either synchronize our cash flows, use a lockbox plan, or make payments by wire. Synchronizing Cash flows: Synchronizing cash flows helps to improve their forecast by timing cash receipts to coincide with cash requirements, so that our liabilities are kept to a minimum. Lockboxes: An older form of cash management that allows you to have a lockbox in a bank in another state that makes receiving money quicker than having it sent across the country. Payments by Wire: Ultimate sped up process easily transferring larger bills from one account to another quickly and safely. 7.) Baumol model: Required Balance | Avg Balance | Cash Turnover...
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...| 639407 | 683037 | 746491 | 717016 | 3.) Baumol Model assumes that the cash inflow is constant. Both equations find the optimal cash balance, but the Miller-Orr model goes a step further and finds the average cash balance. Miller-Orr gives a more accurate depiction of the optimal cash balance because it takes into account the upper and lower limits for the cash balance. A substitute for the baumol model could be the EOQ model because it finds a better target cash balance. 4.) If it was the minimum, we would be charged with a penalty, whereas if it was only an average, there is more flexibility. 5.) Baumol model= 78.76 Miller-Orr = 70.07 The range they consider normal is between 55 and 70, so only the Miller-Orr model fall into this range. 6.) A few changes that we recommend in our firm’s cash management is to either synchronize our cash flows, use a lockbox plan, or make payments by wire. Synchronizing Cash flows: Synchronizing cash flows helps to improve their forecast by timing cash receipts to coincide with cash requirements, so that our liabilities are kept to a minimum. Lockboxes: An older form of cash management that allows you to have a lockbox in a bank in another state that makes receiving money quicker than having it sent across the country. Payments by Wire: Ultimate sped up process easily transferring larger bills from one account to another quickly and safely. 7.) Baumol model: Required Balance | Avg Balance | Cash Turnover | ...
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...Determining the Target Cash Balance Costs of Holding Cash l l l The Baumol Model The Miller-Orr Model Other Factors Influencing the Target Cash Balance Costs in dollars of holding cash Total cost of holding cash Opportunity Costs Trading costs C* 2 Size of cash balance 3 The Baumol Model – Opportunity Cost F = The fixed cost of selling securities to raise cash T = The total amount of new cash needed K = The opportunity cost of holding cash: this is the interest rate. The Baumol Model – Trading Cost F = The fixed cost of selling securities to raise cash T = The total amount of new cash needed K = The opportunity cost of holding cash: this is the interest rate. C C 2 The opportunity cost of holding C is C × K 2 2 C The trading cost is C 2 T ×F C 1 2 3 Time 4 1 2 3 Time 5 1 The Baumol Model The Baumol Model Total cost = C T × K + ×F 2 C Opportunity Costs The optimal cash balance is found where the opportunity costs equals the trading costs C ×K 2 Opportunity Costs = Trading Costs C T × K = ×F 2 C Trading costs C* Size of cash balance The optimal cash balance is found where the opportunity costs equals the trading costs T ×F C Multiply both sides by C C2 ×K =T×F 2 C 2 = 2× T ×F K C* = 2T ×F K C* = 6 2TF K 7 Baumol Model Example l C* = 2TF K The Miller-Orr Model l l Assume Stetson Corp. has fixed costs of selling securities of $800,...
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...1. Discuss the working capital management? Working capital management Working capital management refers to the administration of current assets and current liabilities. Liquidity management involves the planned acquisition and use of liquid resources over time to meet cash obligations as they become due. The firm’s liquidity is measured by liquidity ratio such as current ratio, quick ratio, cash ratio. Financing current asset Current Assets require financing by use of either current funds or long term funds. There are three major approaches to financing current assets. These are: a) Matching Approach Under this approach, the firm adopts a financial plan which involves the matching of the expected life of assets with the expected life of the source of funds raised to finance assets. The firm, therefore, uses long term funds to finance permanent assets and short-term funds to finance temporary assets. Permanent assets refer to fixed assets and permanent current assets. b) Conservative Approach A firm that follows the conservative approach depends more on long-term funds for financing needs. The firm, therefore, finances its permanent assets and a part of its temporary assets with long-term funds. Short-term funds are cheaper than long-term funds. However, short-term funds must be repaid within the year and therefore they are highly risky. C) Aggressive Approach This is a high risky strategy of working capital financing wherein short term finances are utilized...
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...The first theories to hold cash is to avoid the cost of being short liquid assets (Baumol, 1952) (Tobin, 1956) (Meltzer, 1963) (Miller and Orr, 1966) and Karni (1973). Besides the fact that the cash-to-assets ratio for U.S. firms almost doubled (Bates, Kahle & Stulz, 2009) we think that U.S. firms do not hold too much cash. Firms hold cash for different motives. According to Keynes (1936) these motives are: a transaction motive, precautionary motive and speculative motive. Based upon these three motives we explain why U.S. firms hold a lot of cash. The first motive for holding cash is the precautionary motive (Keynes, 1936), which tells us that firms hold extra cash to be prepared for sudden uncertainty - a risk which cannot be hedged. Bates et al. (2009) states that an increase in idiosyncratic risk leads to an increase in cash flow volatility. This volatility increase evolves in an increase in the volatility of unhedgeable risk. A reaction to unhedgeable risk is to hold more cash. You want to have some savings when you have to do unexpected expenses. Research (Bartram, 2009) shows that U.S. firms are more exposed to idiosyncratic risk than foreign firms. This is due to several country characteristics. Because U.S. firms face larger exposures to idiosyncratic risks than foreign firms do, they will have more cash holdings. Moreover, there has been an increase in earnings volatility for U.S. firms over the past decades (Boileau and Moyen, 2012). This increase in volatility...
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...BAB4 | PENGELOLAANKAS | | A. ALIRAN KAS DALAM PERUSAHAAN Setiap perusahaan dalam menjalankan usahanya selalu membutuhkan uang tunai atau kas. Kas diperlukan baik untuk membiayai operasi perusahaan sehari-hari seperti pembelian bahan baku, pembayaran upah, pembayaran hutang, atau pembayaran-pembyaran tunai lainnya, serta dibutuhkan untuk investasi pada aktiva tetap. Pengeluaran kas ada yang bersifat kontinyu seperti untuk pengeluaran-pengeluaran rutin dan ada pula yang bersifat intermitten, seperti pembayaran dividen, pembayaran pajak, pembelian aktiva tetap. Pengeluaran kas untuk pembayaran-pembayaran tersebut sering disebut sebagai aliran keluar atau cash outflow. Sedangkan penerimaan-penerimaan kas disebut sebagai aliran kas masuk atau cash inflow. Aliran kas masuk bila diperoleh dari beberapa sumber antara lain dari hasil penjualan tunai, penerimaan piutang, dan penerimaan-penerimaan lainnya. Kas bagi perusahaan bisa diumpamakan seperti darah dalam tubuh manusia. Setiap bagian yang ada dalam perusahaan membutuhkan aliran kas. Bagian produksi membutuhkan kas untuk membeli bahan baku, bahan penolong, membayar upah buruh, gaji mandor, membayar biaya pemeliharaan, membeli perlengkapan pabrik, dan pengeluaran tunai lainnya. Tanpa ada kas maka praktis kegiatan produksi akan terganggu, yang akibatnya akan mengganggu bagian lain yang terkait. Bagian pemasaran membutuhkan kas untuk membayar iklan, membayar gaji dan komisi, bagian pemasaran tidak bisa berbuat banyak untuk...
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...Improving Local Health Care Demetrice Armwood Harold Griffin, Ph.D. HSA 520 – Health Information Systems February 28, 2013 Improving healthcare at the local level is a very slow process. With all the new technology that has evolved, it has yet to reach the smaller practices and clinics on the local level. New technology has been created to eliminate the problems associated with accessing patient medical records, duplicating services, data organization, order entry and many other problems one may face in the healthcare industry. In my most recent conversation with a Licensed Practical Nurse at the local health department in Northeastern North Carolina, I was astonished to learn that this region, serving 12 counties, is still currently using paper file folders for recordkeeping of all of patient medical records. Although they have begun the process of seeking to move toward an electronic health records (EHR) application system, it is a very slow process as they are currently keeping records on both paper files and the newly EHR system. By implementing the EHR system, access to medical records will be available to all persons involved with caring for each patient while alleviating the endless paper trail associated with medical records. Garets and Davis (2006) report that many people in the healthcare industry and the government confuse the terms electronic medical record (EMR) and electronic health record (EHR). Garets and Davis (2006) proposed...
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...3 marks: 1. What is current assets policy? State the policies related to current asstes management. 2. State the matching approach concept of working capital policy. 3. What do you understand by the cost trade-off? 4. State the difference between pledge and mortgage? 5. What is optimal conversion size/amount? 6. What are short costs? 7. what is cash cycle? 8. State the difference between bank overdraft and cash credit. 9. Briefly explain the modes of security of bank financing. 7 marks: 10. Explain the various types of bank finances available for working capital management. 11. Compute maximum bank borrowings permissible under method I, II and III of Tandon committee norms from the following figures and comment each method: Current liabilities In lacs Current assets In lacs Creditors for purchases Other current liabilities Bank borrowings 200 100 300 400 Raw material Work in progress Finished goods Receivables Other current assets 400 40 180 100 20 700 740 Assume core current assets at ` 190 lacs. 12. Briefly explain the impact of risk-return trade off on the level of current assts. 13. What are the objectives of cash management? 14. Compute the current ratio for all three policies. 16. From the following information, prepare cash budget of a business firm for the month of April. (a) The firm makes 20 per cent cash sales. Credit sales are collected 40, 30 and 25 per cent in the month of sales, month after and second month after sales...
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...An Assessment of Corporate Cash Management Practices Author(s): Lawrence J. Gitman, Edward A. Moses and I. Thomas White Source: Financial Management, Vol. 8, No. 1 (Spring, 1979), pp. 32-41 Published by: Wiley on behalf of the Financial Management Association International Stable URL: http://www.jstor.org/stable/3665408 Accessed: 26-04-2016 11:33 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://about.jstor.org/terms JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Financial Management Association International, Wiley are collaborating with JSTOR to digitize, preserve and extend access to Financial Management This content downloaded from 202.79.21.43 on Tue, 26 Apr 2016 11:33:11 UTC All use subject to http://about.jstor.org/terms An Assessment of Corporate Cash Management Practices Lawrence J. Gitman, Edward A. Moses, and I. Thomas White Lawrence J. Gitman and Edward A. Moses are Associate Professors of Finance in the College of Business Administration at the University of Tulsa. I. Thomas White is a mechanical engineer with Mobil Pipeline Company in Dallas, Texas. The cost of preparation, distribution, and other clerical...
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...Financial Management Assignment | Case Study and Question Analysis | Amandeep Singh Kabli F-084 Section - B | Case: 1 Arnold Athletic Supplies Answer: Required Rate of return > =WACC Equity* cost of equity + debt*Interest (1-tax) WACC= -------------------------------------------------------------------------- Debt + equity Equity = Market value of the equity = No. of shares* market Value of the share = 1,2000,000 * 25 ------------------------------------------------- = 30,000,000 Debt = > Bonds = 1,500,000 Mortgages = 1,400,000 ------------------------------------------------- Cost of equity = (div1/Po) + g ------------------------------------------------- = 10.24 % Cost of Debt From Profit and loss account: Tax Rate: 39.47 % Bonds = 13% Effective bond rate = 13(1-.3947) = 7.8689% Effective mortgage rate = 14(1-.3947) = 8.4742 % ------------------------------------------------- Using the above data WACC = 10.06% So the current WACC is 10.06 % ------------------------------------------------- WACC with Option 1 Assuming the bond life is 10 years Effective Coupon Rate = Interest + (Redeemable Value –Market Price)/2 ----------------------------------------------------------------- ...
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...Strategies for Managing Surplus funds * Keith v Smith says the financial manager can consider a series of seven strategies for handling the excess cash balance with the firm: * 1. Do nothing : the financial manager simply allows surplus liquidity to accumulate in the current account. * This strategy enhances liquidity at the expense of profits that could be earned from investing in surplus funds. * 2. Make an adhoc investment: the FM makes investments in some what adhoc manner . * Such a strategy makes some contribution, though not optimal contribution to profitability with out impairing the liquidity of the firm. * It is followed by the firms which cannot devote enough time and resources to management of securities. * 3. Ride on yield curve: this is a strategy to increase the yield from a portfolio of marketable securities by betting on the interest rate changes. * If the financial manager expects that interest rates will fall in the near future, he would buy longer term securities as they appreciate more, compared to shorter term securities. * On the other hand , if the FM believes that the interest rates will rise in the near future, he would sell longer term securities. This strategy hinges on the assumption that the FM has superior interest rate forecasting ability. * Empherical evidence, however suggests that it may be futile to try to do better than average. The expected higher return is almost invariably accompanied by higher...
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...SUMMER INTERNSHIP PROJECT REPORT ON ‘Study of SBI FAST-Cash Management at State bank of India’ At [pic] By DINESH MEGHWANI (REG.NO.1120814) MBA - Finance, 2011-2013 Under the esteemed guidance of Under External guidance of Under Internal guidance of Mr. Rama Rao Duba Prof. Dr. Ramkesh Gupta Chief Manager Finance Department SBI-Nawapara Rajim Christ University, Bangalore [pic] CHRIST UNIVERSITY INSTITUTE OF MANAGEMENT BANGALORE-56002 DECLARATION I, DINESH MEGHWANI, a student of PGDM with GERMAN MBA, at Christ University hereby declare that this Project Report under the title “A study on SBI-FAST Cash Management” is the record of my original work under the guidance of Mr. Rama Rao Duba. This report has never been submitted to anywhere else for award of any degree/diploma. Place: Nawapara Rajim DINESH MEGHWANI Date: MBA – 3rd trimester [pic] CERTIFICATE This is to certify that MR. DINESH MEGHWANI (1120814) is...
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...ANÁLISIS DE LAS DECISIONES DE INVERSIÓN Y DE FINANCIACIÓN EN LA EMPRESA Marta Gómez-Puig Universitat de Barcelona Abril 2005 Parte I (Decisiones de Inversión) Tema 1: Introducción. 1.1. La función financiera de la empresa. 1.2. Decisiones financieras de la empresa. Tema 2: La gestión del capital circulante 2.1. Activos y pasivos circulantes. 2.2. Análisis del fondo de maniobra. 2.3. Ciclo de explotación y período de maduración. Tema 3: La gestión de tesorería 3.1. Concepto de Tesorería. 3.2. Razones para el mantenimiento de un saldo mínimo de tesorería. 3.2. Modelos básicos de Gestión de tesorería: 3.3.1. Modelo de Baumol. 3.3.2. Modelo de Beranek. 3.3.3. Modelo de Miller-Orr. 3.3.4. Modelo de Stone. Tema 4: La gestión de inventarios 4.1. Concepto de inventarios, existencias o stocks. 4.2. Costes y beneficios asociados a la inversión en existencias. 4.3. Modelo EOQ (Economic Order Quantity) 4.4. Variaciones del Modelo EOQ. 4.4.1. Introducción de una capacidad de aprovisionamiento finita y aprovisionamiento gradual. 4.4.2. Introducción de descuentos en el precio de adquisición según el volumen del pedido. 4.4.3. Introducción de costes de ruptura. 4.5. Alternativas a la inversión en existencias: Sistemas “Just-in-time”. 2 Tema 5. La gestión de cobros 5.1. La decisión sobre los términos del cobro. 5.2. La decisión sobre las condiciones de crédito a los clientes. 5.3. Seguimiento de las cuentas a...
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...MINISTRY OF EDUCATION AND SCIENCE OF THE REPUBLIC OF KAZAKHSTAN ALMATY MANAGEMENT UNIVERSITY SCHOOL/FACULTY “SCHOOL OF FINANCE AND MANAGEMENT” DEPARTMENT “FINANCE, ACCOUNTING AND AUDITING” SUBJECT – FINANCIAL MANAGEMENT TERM PAPER “Methods of optimization of cash flows of the company” Done by: Klimov Kirill 4rt year student, Finance, 1202 Checked by: d.ec.sc.,Yelubayeva Zh.M. Almaty, 2015 CONTENT INTRODUCTION 3 1. FINANCIAL AND ECONOMIC ESSENCE OF CASH 4 1.1 Definition and classification of cash flows 4 2. OPTIMIZATION OF CASH FLOWS ON THE EXAMPLE OF THE COMPANY LLP “BASHLAK TRANS EXPRESS ALMATY” 16 2.1 General characteristic of activity 16 2.2 Cash flow analysis of LLP "BASHLAK TRANS EXPRESS ALMATY" 17 3. OPTIMIZATION OF THE SYSTEM IMPROVEMENT OF CASHFLOW AT THE ENTERPRISE 25 CONCLUSION 29 REFERENCES 30 INTRODUCTION In a modern economic situation one of the most important conditions of a survival and development of the enterprise is existence and rational use of monetary funds. In such circumstances, one of the key problems of the financial analysis is to define and maintain an optimal size and structure of the invested capital in a monetary form in order to obtain the maximum amount of cash...
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............................ 1 Profitability Analysis ..................................................................................... 2 Risk Analysis ................................................................................................ 5 Break-Even Analysis .................................................................................... 6 1.2 Financial Reporting and Financial Statement Analysis ...................................... 1 1.3 Analytical tools for Assessing Profitability and Risk......................................... 2 2. Equity Valuation and Analysis 2.1.1 2.1.2 2.1.3 7 2.1 Valuation Model of Common Stock .................................................................... 7 Dividend Discount Model............................................................................. 7 Free Cash Flow Model................................................................................. 8 Measures of Relative Value ......................................................................... 8 3. Corporate Finance 3.1.1 3.1.2 3.2.1 3.2.2 3.3.1 9 3.1 Fundamentals of Corporate Finance ................................................................... 9 Discounted Cash...
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