• Why cash flows are important??

Types of cashflow

• Capital and revenue items

• Exceptional and unexceptional items

• Regular and irregular items

Working capital Cycle

• It measures the period of time between cash outflow of material and cash inflow from customer

WORKING CAPITAL

• Working capital is the difference between company's current assets and current liabilities

How to improve working capital

• It can be improved by→Reducing credit period of customer→ Reducing inventory level→ Reducing working capital cycle→ Increasing credit period from supplier→ Work In Progress fall→ Reduction in labour cost→ Reduction in Overheads.

EQUITY financing (long term financing)

→Dividend are optional→ Dividend amount is optional→Dividend is not tax exempt→Increase overall share capital→No impact on loan / liability(Right issue, Bonus issue, Script dividend, Share spilt)

• Right issue means before issue of new shares to public, company first offer it to existing shareholders because they have sight to purchase shares first.

• Bonus issue means company issue additional Shares without any payment to existing shareholderfor eg. 1 share for every 5 shares

• Script dividend means payment of dividend in the form of shares rather than cash

• Share spilt means that just splitting shares in further shares.

DEBT Financing (long term financing)

•→Interest is compulsory→Interest is tax exempt→ No impact on current share capital→ Increase in overall liability of company

Leasing (medium term financing)

• FINANCE LEASE→ Type of lease in which there is a transfer of title

• OPERATING LEASE→ Type of lease in which lad only have a sight to operate the machine and there is no transfer of title

CASH BUDGETS

• Cash budget is detailed forecast of cash receipt, payment and balances showing any defficiency or surplus.

Deficit (Reasons)

• Cash flow problemsI. Making lossesIi. InflationIii. Seasonal businessIv. One of item of expenditure

Deficit (corrective actions)• Overdraft• Sale of short term investment• Raising share capital• Nature and timings of discretionary cash flow• Inventory level• Leading and lagging

Deficit (corrective actions)

• A) Postponing capital expenditureB) accelerating future cash flowC) selling of investment or asset

Surplus (Actions)

• Transaction motive (spend cash for regular expenditures)

• Precautionary motive (save money for safety purposes

• Speculative motive (money available for investment)

• Risk Position→ Government stock→ local authority stock.→Other public corporation stock→ company mortgage loan stock→Other Secured loans→ Unsecured loans→ Convertible loan stock→Preference shares→ Equity shares

Types of bank borrowings

• Overdraft• Term loan• Committed facility• Revolving facility• Uncommitted facility• Banker's acceptance facility

BANK RELATIONSHIP

• Debtor / creditor's relationship• Mortgagor/Mortgagee relationship• Fiduciary relationship

Bank’s Lending criteria

• character of customer• Ability to borrow and repay • Margin of Profit• Purpose of the borrowing.• Amount of borrowing• Repayment terms• Insurance against the possibility of non-

payment

The role of Treasurer

• Corporate financial objectivesFinancial aims and strategy, Treasury policy, financial and treasury system

• Liquidity managementWorking capital and money transmission management, Banking arrangement, money management

• Funding managementFunding policy and procedure, sources of fund and type of fund

• Currency managementExposure policies and procedures, Exchange dealing, International monetary economics and exchange regulations

• Corporate financeRaising share capital, Mergers, acquisition, business sale, obtaining stock exchange listing

• Loan Repayment methodBullet (paid at the end of maturity)Baloon (Payment of a%of loan with major part remaining payable the end of matiuity paidStraight payment method.Payment equal amount of installment each periodTypes of interest rates→ Fixed interest rate→ Variable interest rate→KIBOR+%→ LIBOR+%