Transcript FINANCIAL LAYERING IN EXPORT CHAIN & SUSTAINABILITY

FINANCIAL LAYERING IN
EXPORT CHAIN &
SUSTAINABILITY
– LIVE CASE LEARNING
Prof. Harkirat Singh
Professor & Consultant
IIFT, New Delhi
BASIS FOR CALCULATING MONEY
LAYERING IN EXISTING EXPORT CHAIN
Raw material requirement per month
Percentage of manufacturing cost in term of raw
material consumed
Percentage of packing charges in term of raw
material consumed
Percentage of profit in term of raw material
consumed
10,000,000
20%
5%
10%
Interest charged by bank on rupee pre & post
shipment finance
7.5% P.A.
Interest charged by banks for USD pre & post
shipment finance foreign currency loan facility
(6LIBOR +2%)
2.5% P.A.
Average size of export order per shipment
USD 100,000(Approx.)
STUDY OF EXISTING EXPORT CHAIN OF
THE COMPANY
Cash
Bucket 1
(FUNDS
)
Upper Portion
3 months
21 days
Raw
Material
Stock in Process
(Semi finished goods)
Bucket 2 (FUNDS
)
Bucket 3 (FUNDS
Money Layered Horizontal Line
Lower Portion
3 months usance
Furnished goods and
export consignment in
transit, warehouse and
custom clearance
Export bill
receivable
Bucket 5
(FUNDS
)
EXISTING EXPORT CHAIN
Bucket 4
(FUNDS
)
)
FINANCIAL STRUCTURE OF EXISTING
EXPORT CHAIN OF THE COMPANY
Bucket
Raw material
Stock in (process semi
finished goods)
Finished Goods &
Consignment in Transit
and warehousing)
Export Receivables
Total
Average period of
Stock in the Bucket
3 months
Money Layered in Bucket
RM =
Cost of Money
layered @ 7.5%
p.a.
30,00,000
5,6250
21 days
RM =
20%ME =
6,99,999.99
1,39,999.99
8,39,999.98
3,624.65
3 months
RM =
20%ME=
5%PC=
TC =
30,00,000
6,00,000
1,50,000
1,00,000
38,50,000
72,187.50
45,00,000
1,01,712.33
1,21,89,999.98
2,33,774.48
90 Days +20 NTP =
110 days Interest Rate
@ 7.5% p.a.
CALCULATION OF MONEY LAYERED & COST
OF IMPROVED EXPORT CHAIN
Bucket
Average period of
stock
Money layered
Money
released as
compared to
existing chain
Cost of money
layered
@7.5% p.a.
Raw material
1 month
RM =
10,00,000
20,00,000
6,250
Stock process
(semi finished
goods)
15 days
RM =
ME =
5,00,000
1,00,000
6,00,000
2,39,999.98
1,849.32
Finished goods &
consignment in
transit and
warehousing
45 days
RM = 15,00,000
ME = 3,00,000
5% PC =
75,000
TC =
1,00,000
19,75,000
18,75,000
18,261.99
60 days interest @
7.5% USD 100,000
1 USD = 45 INR
45,00,000
NIL
55,479.45
80,75,000
44,14,999.98
82,200.76
Export receivables
Total
INNOVATIVE EXPORT CHAIN USING USD
FINANCING
Cash
Bucket 1
(Funds in USD)
1 months
15 days
Raw
Material
Stock in Process
Bucket 2
Bucket 3
(Funds in USD)
(Funds in USD)
45 days
Furnished goods
Export bill
receivable
60 days Bucket 5
(Funds in USD)
INNOVATIVE EXPORT CHAIN
Bucket 4
(Funds in USD)
CALCULATION OF MONEY LAYERED & COST
OF INNOVATIVE EXPORT CHAIN
Bucket
Raw material
Average taken to period
stock same as in
previous chain
Money layered in USD
1 month
RM =
10,00,000
or $ 22,222.22
Advance 20% of order
= $20,000.00
Balance = $2,222.22
Stock in process (semi
finished goods)
15 days cost as per
improved chain
Cost of =
6,00,000
Stock in process or
$13,333.33
Finished goods stock
in transit &
warehousing
45 days cost as per
improved chain
Bill receivables
60 days from bill of
lading as per new
arrangements
Cost of finished
Stock in transit or
warehousing
Money released in
rupees as compared to
improved chain
20% of advance order
9,00,000
Or
$4.63
$13.70
19,75,000
$135.27
$43,888.89
Export Bill $ 100,000
Total
Cost of money
layered
@7.5% p.a. in
USD
$159,444.24
71,74,990.80
$410.96
9,00,000
$564.56
Or
25,405.20
COMPARATIVE FINANCIAL EFFICIENCY OF
EXPORT CHAINS
Export Chain
Existing Export
Chain
Total Money
Layered
Money
Unlayered
Interest Cost of
Money Layering
Interest Cost
Saving from
previous chain
1,21,89,999.99
NIL
2,33,774.48
NIL
Improved
Export Chain
80,75,000
41,14,999.99
82,200.76
1,51,574.48
Innovative
Export Chain
71,74,990.80
900,000
25,405.20
56,794.80