Transcript Learning objectives

Learning objectives
Understand key aspects of financial management
Understand how to analyse the difference
between increasing cash inflows and reducing
cash outflows
Cash flow
Movement of money into
and out of a business
It is important that there
should always be some
money in the bath!
Computer task
Log on to Moodle
Open document improving cash flow
Do Inflow or outflow task
FINANCIAL MANAGEMENT
A Business has some control over its finances.
It can within limits change its inflows and
outflows.
This is known as
financial management
Duxton is a manufacturer of pet food. It has its own range of pet foods that it
supplies to small independent retailers and garden centres, mainly through
wholesalers. However, much of its output goes to large supermarket chains as own
label products.
Duxton uses financial management to achieve its financial
objectives. The top managers at Duxton decided 12 months ago that the economy
was going into recession. They were afraid this would affect their cash flow. Why?
Customers could stop buying pet food and this
would reduce the cash inflows to the business.
If cash outflows did not reduce by the same
then the company could get into serious
financial difficulty.
HELP! What could they do?
Increase cash inflows
Reduce cash outflows
TASK – IMPROVING CASH
INFLOWS
•
•
•
•
Increasing sales revenue
De-stocking
Improving cash flow from customers
Long term solutions
– Bank loan
– Selling shares
– Asset sale
– Sale and leaseback
Complete worksheet
on Moodle.
Use powerpoint
Increasing sales revenue
Sales revenue = selling price x quantity
Increase revenue:
• Increase selling price
• Increase quantity sold
• Or a combination of both
Improve marketing
Better products
DE-STOCKING
Having a one-off sale - selling off stocks of products at a
reduced price
• Result : Customers buy more and there is an
increase in monthly sales
• During the month of the sales, cash inflows
increase
Improving cash flow from customers
• Have a rigorous system in place to deal with late payers. Invoices sent
out to customers chasing up payment. Receive payments sooner
improving inflows.
• Reduce the time given to customers. Instead of giving customers 6
months to pay, reduce this down to 4 months. Cash inflows improve,
however, you could lose customers as they buy off a competitor who gives
them a longer period.
• Use a factor company - A financial company that will advance the money
that a business is owed by its customers. It will advance the company
usually 85% immediately improving the cash inflows but the factor will
charge a few usually 5% of the total debt.
Long term solutions
• A bank loan - A large one-off inflow.
This would mean the net
cash flow going forward month to month would be larger than it
would otherwise have been. However, the loan has to be repaid
with interest. This would incur an increase in outflow each month
• Issue new shares - investors pay cash for shares.
The cash is
a cash inflow to the business
• Asset sale – selling off any assets that are no longer used. Cash
inflows to the business.
• Sale and leaseback – selling an asset but leasing it back.
A
large one-off cash inflow into the business. However, there will be a
cash out flow every month on rent.
Improving cash outflows
• Order for new materials and stock
• Delay paying invoices
• Lease rather than buy
Complete
worksheet
Order for new materials and stock
• Order fewer materials, however, may not have
enough stock when needed. A strategy normally
used when dealing with a fall in sales.
• Use materials and stock more efficiently –
reducing waste
• Introduce a JIT system
Delay paying invoices
• Businesses buys raw materials and stock from other
businesses and may be given 30, 60 days to pay the invoices.
The longer the business can delay paying their invoices the
longer the delay in outflows improving their cash flow.
• However, delaying payments too long can be risky as the
supplier may refuse to sell the company in products until the
invoice is paid. Some businesses offer discounts for early
payment. A business who delays payment will lose out on the
discount.
Lease rather than buy
• Purchasing an asset incurs a large initial
outflow.
• Leasing would involve much smaller outflows
over a period of time
• However, the business would never own the
asset.
Computer tasks
Complete Atif’s cash flow and
answer questions
Task
Over to you case study
Plenary
Multi choice worksheet