16-10-2014 (Finance Lecture 5th semester BBA)

16/10/2014

Working capital management:

Cash & market:

Account Receivable & inventory management

95% – 90% sales on credit is the part of account receivable cash in trading business/source. Let’s assume the business we study is having A/R due to credit sales. Important points are following that effect on it.

J  Credit Period                                                                     J    Payment Incentives

 

Accounts Receiveble And inventry Management
Year		1			2 (i)		3(ii)
		Sales $	2400000		Sales $	3000000	Sales $	3200000
		Unit Sales Price $	10		Unit Sales Price $	10	Unit Sales Price $	10
		Unit Veriable Cast $	8		Unit Variable Cast $	8	Unit Variable Cast $	8
		Opportunity Cost %	20		Opportunity Cost %	20	Opportunity Cost %	20
		Default Risk %	5		Default Risk %	10	Default Risk %	15
2	2(i)			600000	Profitability increase sales Inventory turnover rate Cost of sales Profit in Alternative Default Risk Lose Total Total profit	120000   6 8000 1600 60000 61600 58400	Profitability increase sales Inventory turnover rate Cost of sales Profit in Alternative Default Risk Lose Total Total profit	160000   4 16000 3200 120000 123200 36800
	3(ii)			800000
	profit/unit			2
	no of units 2(i) 3(ii)			60000
				80000
	Cost of unit % 2(i) 3(ii)			0.08
				0.08
	Recive at end  on recovery time 2(i) 3(ii)			100000
				200000