Current assets management value based working capital decisions
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CURRENT ASSETS MANAGEMENT: VALUE BASED WORKING CAPITAL DECISIONS. CURRENT ASSETS MANAGEMENT: VALUE BASED WORKING CAPITAL DECISIONS. E-mail: [email protected] www: HTTP://MICHALSKIG.UE.WROC.PL/ Mobile: 0503452860 5 lectures + 1 exam (test) Next lecture: 20th October.

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Current assets management value based working capital decisions1
CURRENT ASSETS MANAGEMENT: VALUE BASED WORKING CAPITAL DECISIONS

  • E-mail: [email protected]

  • www: HTTP://MICHALSKIG.UE.WROC.PL/

  • Mobile: 0503452860

  • 5 lectures + 1 exam (test)

  • Next lecture: 20th October.

  • T. S. Maness, J. T. Zietlow, „Short-Term Financial Management”.

  • N. C. Hill, W. L. Sartoris, Short-term financial management: text and cases, Prentice Hall, 2004.


Basic financial aim of the firm
Basic financial aim of the firm DECISIONS

  • Firm value maximization:

    Where: FCFn = free cash flows,

    k = cost of capital financing the firm(WACC)

    n = period in which FCFn will be generated


Fcf how to calculate
FCF – how to calculate? DECISIONS

k – cost of capital, how to value?



Cash cycle operating cycle1
Cash cycle & Operating Cycle DECISIONS

  • Operating cycle - the time period from commitment of cash for purchases until the collection of receivables resulting from the sale of goods/services.

    • Operating cycle = Inventory period + A/cs receivable period

  • Cash cycle - the time period from the actual outlay of cash for purchases until the collection of receivables.

    • Cash cycle = Operating cycle - A/cs payable period


  • Example cash cycle operating cycle
    Example: Cash cycle & Operating Cycle DECISIONS

    • The following information has been provided:

      • CR = 720

      • Inventory = 60

      • Accounts receivable = 80

      • Accounts payable = 50

    • Calculate OKZAP, DSO, OOSZwD, CO, CKG.

    • If we know that operating cash will be held on the level of 2 days sale, how much money will be tied in NWC (Net Working Capital)?


    How changes in curent assets influence value
    How changes in curent assets influence value? DECISIONS

    CS: Inventory period = 35 days, Accounts receivable period = 26 days, accounts payable period = 20 days, Cash Revenues = 1234, T=19%, calculate:

    • Assets, if FA = 800

    • Capital Involved

    • FCF0, FCF1-n, FCFn

    • IRR

    • Cost of Capital if D/(D+E) = 40%, kd = 13% & ke = 34%.

    • NPV

      What will change if IP is shorter? Longer?

      What will change if ARP is shorter? Longer?

      What will change if APP is shorter? Longer?




    Liquidity level value of liquidity
    Liquidity level & Value of Liquidity DECISIONS

    Where: vi = intrinsic (internal) value of liquidity,

    vm = market value of liquidity,

    pp1 = liquidity level (1) for vi > vm

    ppopt = optimal liquidity level for vi = vm


    Liquidity level value of liquidity1
    Liquidity level & Value of Liquidity DECISIONS

    Where: vi = intrinsic (internal) value of liquidity,

    vm = market value of liquidity,

    pp2 = liquidity level (2) for vi < vm

    ppopt = optimal liquidity level for vi = vm


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