Video 3 - Cash behavior and financial needs

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来自 Fundação Instituto de Administração 的课程

Budgeting essentials and development

21 个评分

Fundação Instituto de Administração

Budgeting essentials and development

21 个评分

The Budgeting Essentials and Development course focus on an integrative and practical view of concepts, methods, and techniques to develop a budget. After finishing this course, learners will be able to: - Develop the budget with a broad view of the corporate functions; - Integrate the strategic guidelines into the discussions of budgeting process; - Structure the budget planning and development in a logical sequence - Coordinate the project of budget planning with the different areas of the company - Actively promote assumptions discussions to improve the process of developing the budget - Apply financial concepts to support the budget planning process - Design a budget monitoring and control model to support the performance management - Evaluate the performance of the company by managing the results and the budget In this course, learners will have a deeper understanding of the budgeting process, its challenges, common issues, and approaches to mitigate the problems and improve the learning curve of budget planning. It is integrative by emphasizing the transition between the corporate strategy and the budget. It is practical by following a structured process of going through a framework that illustrates and demonstrates how to analyze, develop and control the budget.

从本节课中

Module 3.2 - The company operations and the Budget

In this module, the discussion goes through a step-by-step framework to support the budget development. Each of the steps represents a relevant component of the budget, and the links between the budget of each area of the company are discussed. The integration of the different area's budget is one of the primary objectives of this module, which will lead learners to an integrative view of the budget development. And this integration is the key learning objective of the module.

Video 1 - Putting the budgets together: The Master Budget3:37

Video 2 - Balance Sheet components6:16

Video 3 - Cash behavior and financial needs6:21

Video 4 - Supporting balance sheet analysis5:30

与讲师见面

Alberto Sansiviero Jr.
MBA
FIA Futures Studies Program
Samantha Mazzero
MSc, MBA, BS Math
FIA Profuturo – Futures Studies Program
Nelson Yoshida
Ph.D., MBA, B.Eng.
FIA Profuturo – Futures Studies Program
Roberto Dumas Damas
M.Sc., CFA
FIA Profuturo - Futures Studies Program
Fernando Fleury
Ph.D.
FIA Profuturo - Futures Studies Program

Hi there. We have seen in the last video the discussion

on the relevant components of the balance sheet.

We still need to go through the cash behavior,

the financial needs, and the balance sheet compilation.

If companies managers don't have plans to change any policies,

then the cash behavior may not change much along the time.

If change or plan it, though,

we can follow our model proposed by Stephen Grant to estimate the cash behavior.

Here's the model adapted from his proposition.

Let's discuss the items in the table.

An aggressive collection policy will increase accounts receivables turnover,

generating a cash increase.

A less aggressive collection policy will decrease accounts

receivable turnover, generating cash decrease.

Reduced stock level or adjusting time implementation in

the production will increase inventory turnover, generating cash increase.

An increase in stock level will decrease inventory turnover, generating cash decrease.

Anticipating suppliers payment or adopting

early payment discounts will increase

accounts payable turnover, generating cash decrease.

Slowing suppliers payment or avoiding

early payments discounts will decrease accounts payable turnover,

which will generate cash increase.

Observe that analyzing the change planned for collection, accounts payment,

production model, and anticipation in receivables,

we can estimate the cash behavior.

Now, let's move on to financing needs.

The analysis on funding requirements is applied

to check if the company will require more cash.

Should the company need more cash?

There are two ways to fulfill it.

One, third party capital, a loan.

Or two, increase in equity.

A loan is the action of borrowing money from a third party, like a bank.

The company can offer part of its assets as a collateral for the loan.

We have to pay back the loan to the third party.

Therefore, the risk defer is an issue to consider before contracting it.

Typical collaterals for a loan are based on the assets of the borrower.

Common assets to consider are the accounts receivable and inventory.

The company can borrow up to a percentage of the sum of

receivables and inventory at the ending period of report.

Borrower and lender exchange communication about the borrowing base in each period.

The borrower can have a loan balance and the remaining available debt,

which is the difference between the borrowing base and the debt at that period.

In the case of equity increase,

there is no need to pay the shareholders back.

However, they expect earnings per share and the stock price increase, dividends.

So, let's discuss how to estimate the need for cash and include debt and equity funding.

Look at the table in the video.

In the table, we have the available borrowing base

which is composed by the receivables and inventory values.

Then, as we mentioned before,

the borrower and the lender set a negotiate percentage,

to be applied on the available borrowing base.

In our case, it's 65%,

the result is the value of total borrowing base as we have in the table.

We also have the preliminary cash balance estimated from the income statement.

It's called preliminary because it doesn't count on any additional financing sources,

only the company's cash.

Now, observe that the company has a total loan account of 721,000 in quarter one,

and the total borrowing base for quarter one is 871,000.

Therefore, the remaining available debt for quarter one is 110,000.

The preliminary cash balance projected for quarter one is

-260,000 and the company can borrow 110,000 in quarter one.

So, the adjusted cash with the new debt is -260,000 plus 110,000,

which results in -150,000 of adjusted cash with debt for quarter one.

Note that the company still is negative in cash,

and the projected preliminary cash balance shows that

the company cash need will increase in the budget year.

Therefore, managers have decide to sell

stocks to finance this cash debts with more equity.

We can see in the budget that they plan to issue $300,000 in new stocks.

And, with this cash from shareholders,

the ending cash balance becomes positive,

as we can see in the bottom line of the table.

Just remember, we have made some assumptions in this example.

First, we assume that the lender is comfortable to lend

money to the company up to the maximum of 65% of borrowing base.

We can assume also that the company is increasing

loan balance and cash is decreasing during the budgeted year.

So, we are considering that at any point in the future,

cash generation will start to increase,

otherwise, the company may have problems shortly.

Bank managers would be interested in knowing if this assumption is feasible.

Well, in this video,

we discussed cash behavior and financial budgeting.

In the next video,

we will move towards the balance sheet compilation.

Thanks for your attention so far.

Please follow through the steps of the course and see you soon. Bye.

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