EKF201 Lecture 11

Calculation for cash non-current liabilities + equity - net working capital - non-current assets

Cash increases... with increased levels of non-current liabilities and equity

Cash decreases... with increased levels of non-current assets and net working capital excluding cash

NWC increases when cash increases, only if the cash comes from non-current assets/long-term liabilities

operating cycle inventory period + accounts receivable period

cash cycle operating period - accounts payable period

inventory period 365 days / inventory turnover

inventory turnover COGS / avarage inventory

payables turnover COGS / avarage payables

Payables period 365 days / payables turnover

receivables turnover credit sales / avarge receivables

accounts receivable period 365 days / receivables turnover

cash cycle begins... when cash is paid for material, and ends when cash is collected from receivables

operating cycle is... the period from the arrival of stock until the receipt of cash

flexible policy large balances of cash and marketable securities, liberal credit terms and large investements in inventory

restrictive policy low cash balances and no investment in marketable securities, no credit sales and small investements in inventory

carrying costs consists of opportunity- and maintenane costs, they increase with increased levels of current assets

shortage costs consists of trading or order costs and costs related to safety reserves. They decrease with increased levels of current assets

minimum point the point on the total cost curve where the optimal amount of current assets is

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