Chapter 10 - Financial Planning

Principles of
Chapter 10 Corporate Finance

Tenth Edition
Financial Planning
Slides by
Matthew Will
McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
13-2
Topics Covered
➢Links Between Long-Term and Short-Term
Financing Decisions
➢Tracing Changes in Cash
➢Cash Budgeting
➢Short-Term Financing Plan
➢Long-Term Financing Plan
➢Growth and External Financing
Links Between Long-Term and Short- 13-3
Term Financing Decisions

Dollars
Current assets = Current liabilities
Fixed Long-term
Fixed = + Equity
Assets liabilities
Assets
Year 1 Year 2 Year 3 Time


Total asset
Dollars invested
Marketable Long-term
securities financing
Strategy A

Total asset
Dollars invested
Short-term
financing
Long-term
financing
Strategy C
13-6
Firm’s Cumulative Capital Requirement

Dollars A
B
C
Cumulative
capital requirement
Year 1 Year 2 Time
Lines A, B, and C show alternative amounts of long-term finance.
Strategy A: A permanent cash surplus

Strategy B: Short-term lender for part of year and borrower for
remainder
Strategy C: A permanent short-term borrower
13-7
Balance Sheet
Example - Dynamic Mattress Company
2009 2008 2009 2008

Current assets: Current liabilities:
Cash 25 20 Bank loans 0 25
Marketable securities 25 0 Accounts payable 135 110
Accounts receivable 150 125 Total current liabilities 135 135
Inventory 125 130 Long-term debt 90 60
Total current assets 325 275 Net worth (equity and retained 350 320
Fixed assets: earnings)
Total liabilities and net worth 575 515
Gross investment 350 320
Less depreciation 100 80
Net fixed assets 250 240
Total assets 575 515
13-8
Income Statement
1. Sales 2,200
2. Cost of goods sold 1,644
3. Other expenses 411
4. Depreciation 20
5. EBIT (1-2-3-4) 125
6. Interest 5
7 Pretax income (5-6) 120
8. Tax at 50% 60
9. Net income (7-8) 60
Dividend 30
Earnings retained in the business 30
13-9
Changes in Cash Flows

Cash flows from operating activities:
Example - Net income 60
Dynamic Depreciation 20
Decrease (increase) in accounts receivable -25
Mattress Decrease (increase) in inventories 5
Increase (decrease) in accounts payable 25
Company Net cash flow from operating activities 85
Cash flows from investing activities:

Investment in fixed assets -30
Cash flows from financing activities:

Dividends -30
Sale (purchase) of marketable securities -25
Increase (decrease) in long-term debt 30
Increase (decrease) in short-term debt -25
Net cash flow from financing activities -50
Increase (decrease) in cash balance 5

13-10
Tracing Changes in Cash
Current
Liabilities
Current +
Assets
- Long-term
+ =
Liabilities
Fixed +
Asset
Equity
13-11
Net Working Long-term Fixed

= + Equity -
Capital Liabilities Asset
13-12
Cash + -
+
Net Working Fixed Long-term
Other Current +- = + Equity
Liabilities
Asset Capital
(not cash) Asset
-
Current
Liabilities
13-13
Long-term Current Other Current Fixed

Cash = + Equity + - -
Liabilities Liabilities Asset (not cash) Asset
long termissue
debt new stocks
receive a 90-day-loan
sell some inventory
sell some plant,
to receive
equipment,
cash machine
Sources of cash flows

13-14

pay long term

buydebt
back new stocks
pay a 90-day-loan
buy some inventory
buy some plant,
paid by
equipment,
cash machine
Uses of cash flows

13-15
Net Working Long-term Fixed

= + Equity -
Capital Liabilities Asset

13-16
Example – Cash and Working Capital
Transaction Cash Working Cap

1. Pay out an extra $10 million cash dividend
2. Receive $2,500 from a customer who pays a
bill resulting from a previous sale
3. Pay $50,000 previously owed to one of its
suppliers
4. Borrow $10 million long term and invest $10
million the proceeds in inventory
5. Borrow $10 million short term and invest $10
million the proceeds in inventory
6. Sell $5 million of marketable securities for
cash
13-17
Example – Cash and Working Capital
Transaction Cash Working Cap

1. Pay out an extra $10 million cash dividend Decrease Decrease
2. Receive $2,500 from a customer who pays a Increase No change
bill resulting from a previous sale
3. Pay $50,000 previously owed to one of its Decrease No change
suppliers
4. Borrow $10 million long term and invest the No Increase
proceeds in inventory change
5. Borrow $10 million short term and invest the No No change
proceeds in inventory change
6. Sell $5 million of marketable securities for Increase No change
cash
13-18
Example – Source or Uses of Cash
Event Source or Use ?

1. A $200 dividend was paid
2. Accounts payable increased by $500
3. Fixed asset purchases were $900
4. Inventories increased by $625
5. Long-term debt decreased by $1,200
13-19
Example – Source or Uses of Cash

1. A $200 dividend was paid Use
2. Accounts payable increased by $500 Source
3. Fixed asset purchases were $900 Use
4. Inventories increased by $625 Use
5. Long-term debt decreased by $1,200 Use
13-20

1. It earned $60 million of net income (operating activity)
2. It set aside $20 million as depreciation. Remember
that depreciation is not a cash outlay. Thus, it must be
added back in order to obtain Dynamic’s cash flow
(operating activity).
3. It reduced inventory, releasing $5 million (operating
activity).
4. It increased its accounts payable, in effect borrowing
an additional $25 million from its suppliers (operating
activity).
5. It issued $30 million of long-term debt (financing
activity).
13-21

1. It earned $60 million of net income (operating activity) Source
2. It set aside $20 million as depreciation. Remember Source
that depreciation is not a cash outlay. Thus, it must be
added back in order to obtain Dynamic’s cash flow
(operating activity).
3. It reduced inventory, releasing $5 million (operating Source
activity).
4. It increased its accounts payable, in effect borrowing Source
an additional $25 million from its suppliers (operating
activity).
5. It issued $30 million of long-term debt (financing Source
activity).
13-22

1. It allowed accounts receivable to expand by $25
million (operating activity).
2. It invested $30 million (investing activity)
3. It paid a $30 million dividend (financing activity)
4. It purchased $25 million of marketable securities
(financing activity)
5. It repaid $25 million of short-term bank debt
13-23

1. It allowed accounts receivable to expand by $25 Use
million (operating activity).
2. It invested $30 million (investing activity) Use
3. It paid a $30 million dividend (financing activity) Use
4. It purchased $25 million of marketable securities Use
5. It repaid $25 million of short-term bank debt Use
13-24
Working Capital
Simple Cycle of operations
Cash
Receivables Raw materials
Finished goods
13-25
Cycle of operations and Cycle of cash
Event Decision to be made
Buy raw materials How much units will be ordered?
Pay by cash Should I lent or use my current cash?
Produce products What technology of production should I choose?
Sell products Should I grant more credit for a particular customer?
Collect cash How to collect receivables?

13-26
Day Event Effect on

cash
0 Buy Inventory None
30 Pay for Inventory −$1,000
60 Sell Inventory and not collect cash yet None
105 Collect receivables by cash $1,000
Calculate Operating cycle and Cash cycle?
13-27
Day Event Effect on

cash
0 Buy Inventory None
30 Pay for Inventory −$1,000
60 Sell Inventory and not collect cash yet None
105 Collect receivables by cash $1,000
Calculate Operating cycle and Cash cycle?
13-28
The Cash Cycle

Cash = Average + Average - Average
cycle days in collection payment
Inventory period period
inventory at start of year

Avg Days in Inventory =
annual COGS/365
receivable s at start of year

Avg collection period =
annual sales/365
payables at start of year

Avg payment period =
annual COGS/365
13-29
Example: The Cash Cycle

FPT's has:
- Accounts receivable of $83,700
- Inventory of $154,200
- Sales of $414,200
- Cost of goods sold of $243,400.
How long does it take the firm to sell its inventory and collect
payment on the sale?
Average days in Inventory = 154,200 / 243,400 x 365 = 231 days
Average collection period = 83,700 / 414,200 x 365 = 74 days

13-30
Example: The Cash Cycle

Bulldog has following information at Beginning & Ending:
Calculate operating cycle and cash cycle?
Average days in Inventory = 53.06 days

Average collection period = 30.93 days
Average payment period = 46.25 days
=> Operating cycle = 84 days , Cash cycle = 37.74 days
13-31
Cash Budgeting
Steps to preparing a cash budget
• Step 1 - Forecast the sources of cash.
• Step 2 - Forecast uses of cash.
• Step 3 - Calculate whether the firm is facing a
cash shortage or surplus.
13-32
Cash Inflow
Dynamic forecasted sources of cash
Ending AR = Beginning AR + Sales - Collections

13-33
Cash Inflow
Dynamic collections on AR
Second Fourth
First Quarter Third Quarter
Quarter Quarter
1. Receivables at start of period 150 199 181.6 253.6
2. Sales 560 502 742 836
3. Collections:
Sales in current period (70%) 392 351.4 519.4 585.2
Sales in last period (30%) 119* 168 150.6 222.6
Total collections 511 519.4 670 807.8
4. Receivables at end of period 1 + 2 - 3 199 181.6 253.6 281.8
* We assume that sales in the last quarter of the previous year were $397 million.
13-34
Example 1: Cash Inflow

13-35

13-36

13-37

The following is the sales budget for Shleifer, Inc., for the quarter of
2010:
Jan Feb Mar
Sales budget $173,000 $184,000 $205,000
Credit sales are collected as follows:
▪ 65% in the month of the sale;
▪ 20% in the month after the sale;
▪ 15% in the second month after the sale.
The account receivable balance at the end of the previous quarter
was $79,800 ($57,200 of which were uncollected December sales).
1. Compute the sales for November.
2. Compute the sales for December.
3. Compute the cash collections from sales for each month from
Jan – March.
13-38

AR: 79,800
Nov Dec Jan Feb Mar Apr May
Sales y x 173,000 184,000 205,000
budget 57,200
Nov 0.65y 0.2y 0.15y
Dec 0.65x 0.2x 0.15x
Jan 112,450 36,800 25,950
Feb 119,600 36,800 27,600
Mar 133,250 41,000 30,750

13-39
Nov Dec Jan Feb Mar Apr May

Sales 150,668 164,429 173,000 184,000 205,000
budget
Nov 97,933 30,133 22,600
Dec 106,229 32,686 24,514
Jan 112,450 36,800 25,950
Feb 119,600 36,800 27,600
Mar 133,250 41,000 30,750
Cash 167,73 178,714 196,000

Inflow
13-40
Cash Outflow
Dynamic forecasted uses of cash

➢ Payment of accounts payable
➢ Labor, administration, and other expenses
➢ Capital expenditures
➢ Taxes, interest, and dividend payments
13-41
Example - Dynamic cash budget 2010

First Second Third Fourth
Quarter Quarter Quarter Quarter
Sources of cash:
Collections on accounts receivable 511 519.4 670 807.8
Other 0 0 77 0
Total sources 511 519.4 747 807.8
Uses of cash:
Payments on accounts payable 250 250 267 261
Increase in inventory 150 150 170 180
Labor and other expenses 136 136 136 136
Capital expenditures 70 10 8 14.5
Taxes, interest, and dividends 46 46 46 46
Total uses 652 592 627 637.5
Sources minus uses -141 -72.6 120 170.3
Calculation of short-term borrow ing requirement:

Cash at start of period 25 -116 -188.6 -68.6
Change in cash balance -141 -72.6 120 170.3
Cash at end of period -116 -188.6 -68.6 101.7
Minimum operating balance 25 25 25 25
Cumulative financing required 141 213.6 93.6 -76.7
13-42
Example 1: Cash Outflow

Dynamic Futon forecasts the following purchases from suppliers:
Jan Feb Mar Apr May June
Value of 32 28 25 22 20 20
goods
($ mil)
a. 40% of goods are supplied cash-on-delivery. The remainder are
paid with an average delay of one month. If the company starts
the year with payables of $22 mil, what is the forecasted level
of payables for each month?
b. Suppose that from the start of the year, the company streches
payables by paying 40% after one month and 20% after 2
months. The remainder continue to be paid cash-on-delivery.
Recalculate payables for each month assuming that there are
no cash penalties for late payment.
13-43
Example 1a: Cash Outflow

Value of 32 28 25 22 20 20
goods
($ mil)
Beginning 22
payables
Jan 13 19
Feb 11 17
Mar 10 15
Apr 9 13
May 8 12
June 8
Payables 35 30 27 24 21 20
13-44
Example 1b: Cash Outflow

Value of 32 28 25 22 20 20
goods
($ mil)
Beginning 22
payables
Jan 12.8 12.8 6.4
Feb 11.2 11.2 5.6
Mar 10 10 5
Apr 8.8 8.8 4.4
May 8 8
June 8
Payables 34.8 24 27.6 24.4 21.8 20.4

13-45
Example 2: Cash Outflow

Apr May June
Credit purchases 235,200 280,800 320,500
Cash disbursements
• Purchases 249,600 235,200 280,800
• Wages, taxes and expenses 63,600 77,136 80,480
• Interest 18,240 18,240 18,240
• Equipment purchases 132,800 145,600 0
• Total Cash disbursement 464,240 476,176 379,520

13-46
Example 1: Cash Budgeting

Apr May June
Credit sales $608,000 633,600 700,800
Credit purchases 235,200 280,800 320,500
Cash disbursement
• Wages, taxes, expenses 63,600 77,136 80,480
• Interest 18,240 18,240 18,240
The company predicts that 5% of its credit sales will never be collected, 35% of
its sales will be collected in the month of the sale, and the remaining 60% will
be collected in the following month. Credit purchases will be paid in the month
following the purchase. In March 2010, credit sales were $336,000, and credit
purchases were $249,600. Using this information, complete the following cash
budget:
13-47

Apr May June
Beginning cash balance $448,000 633,600 700,800
Cash receipts
• Cash collections from
credit sales
• Total Cash available
Cash disbursements
• Purchases
• Wages, taxes and expenses
• Interest
• Equipment purchases
• Total Cash disbursement
Ending cash balance
13-48

Apr May June
Beginning cash balance $448,000 633,600 700,800
Cash receipts
• Cash collections from 201,600
credit sales 212,800 364,800
221,760 380,160
245,280
• Total Cash available 414,400 586,560 625,440
Cash disbursements
• Purchases 249,600 235,200 280,800
• Wages, taxes and expenses 63,600 77,136 80,480
• Interest 18,240 18,240 18,240
• Total Cash disbursement 464,240 476,176 379,520
Ending cash balance $398,160 $743,984 $946,720
13-49
Example - Dynamic cash budget 2010

First Second Third Fourth
Quarter Quarter Quarter Quarter
Sources of cash:
Collections on accounts receivable 511 519.4 670 807.8
Other 0 0 77 0
Total sources 511 519.4 747 807.8
Uses of cash:
Payments on accounts payable 250 250 267 261
Increase in inventory 150 150 170 180
Labor and other expenses 136 136 136 136
Capital expenditures 70 10 8 14.5
Taxes, interest, and dividends 46 46 46 46
Total uses 652 592 627 637.5
Sources minus uses -141 -72.6 120 170.3
Calculation of short-term borrow ing requirement:

Cash at start of period 25 -116 -188.6 -68.6
Change in cash balance -141 -72.6 120 170.3
Cash at end of period -116 -188.6 -68.6 101.7
Minimum operating balance 25 25 25 25
Cumulative financing required 141 213.6 93.6 -76.7
13-50
A Short Term Financing Plan

13-51
Example: Short-term financing

➢ Half the company’s sales are for cash on the nail. The other half
are paid for with a one-month delay.
➢ The company pays all its credit purchases with one-month delay.
Credit purchases in January were $30, and total sales in January
were $180.
Feb Mar April
Total sales $200 $220 $180
Purchases of materials
• For cash 70 80 60
• For credit 40 30 40
Other expenses 30 30 30
Taxes, interest and dividends 10 10 10
Capital investment 100 0 0
➢ Complete the cash budget table belows.

13-52

Feb Mar April
Sources of cash:
• Collections on cash sales
• Collections on account receivables
• Total sources of cash
Uses of cash:
• Payments of accounts payable
• Cash purchases of materials
• Other expenses
• Capital expenditures
• Taxes, interest and dividends
• Total uses of cash
Net cash inflow
Beginning cash balance 100
Ending cash balance
Minimum operating cash balance 100 100 100
Cumulative short-term financing required
13-53

Feb Mar April
Sources of cash:
• Collections on cash sales $100 $110 $90
• Collections on account receivables $90 $100 $110
• Total sources of cash $190 $210 $200
Uses of cash:
• Payments of accounts payable 30 40 30
• Cash purchases of materials 70 80 60
• Other expenses 30 30 30
• Capital expenditures 10 10 10
• Taxes, interest and dividends 100 0 0
• Total uses of cash 240 160 130
Net cash inflow ($50) $50 $70
Beginning cash balance 100 $50 $100
Ending cash balance $50 $100 $170
Minimum operating cash balance 100 100 100
Cumulative short-term financing required $50 $0 ($70)
13-54
Financial Planning
Why Build Financial Plans?
➢ Contingency planning
➢ Considering options
➢ Forcing consistency
13-55
Long-term Financial Planning

Planning Horizon - Time horizon for a financial
plan.
Departments are often asked to submit 3
alternatives
– Optimistic case = best case
– Expected case = normal growth
– Pessimistic case = retrenchment
➢ Financial plans help managers ensure that their
financial strategies are consistent with their
capital budgets. They highlight the financial
decisions necessary to support the firm’s
production and investment goals.
13-56
Financial Planning Steps
Inputs Planning Outputs

Model
Inputs - Current financial statements. Forecasts of

key variables (such as sales or interest rates).
Planning Model - Equations specifying key

relationships.
Outputs - Projected financial statements (pro

forma). Financial ratios. Sources and uses of funds.
13-57
Dynamic Mattress Financial Plan
2009 2008
Net working capital 190 140
Condensed year-end
Fixed assets: balance sheets for
Gross investment 350 320 2009 and 2008 for
Dynamic Mattress
Less depreciation 100 80 Company (figures in $
Net fixed assets 250 240 millions).
Total net assets 440 380
Long-term debt 90 60
Net worth (equity and retained earnings) 350 320
Long-term liabilities and net worth* 440 380
* When only net working capital
appears on a firm’s balance sheet, this
figure (the sum of long-term liabilities
and net worth) is often referred to as
13-58

Latest and forecasted
operating cash flows for
Dynamic Mattress
Company (figures in $
millions).
2009 2010 2011 2012 2013 2014

1. Revenues 2200 2640 3168 3801.6 4561.9 5474.3
2. Costs (92% of revenues) 2055 2428.8 2914.6 3497.5 4197 5036.4
3. Depreciation (9% of net fixed assets at start of year) 20 22.5 29.7 35.6 42.8 51.3
4. EBIT (1-2-3) 125 188.7 223.7 268.5 322.2 386.6
5. Interest (10% of long-term debt at start of year) 5 9 23.4 31.8 42 54.3
6. Tax at 50% 60 89.8 100.1 118.3 140.1 166.2
7. Net income (4-5-6) 60 89.8 100.1 118.3 140.1 166.2
8. Operating cash flow (3+7) 80 112.4 129.8 154 182.9 217.5

13-59

2009 2010 2011 2012 2013 2014
Sources of capital:
1. Net income plus depreciation 80 112.4 129.8 154 182.9 217.5
Uses of capital:
2. Increase in net w orking capital (NWC)
assuming NWC = 11% of revenues 50 100.4 58.1 69.7 83.6 100.4
3. Investment in fixed assets (FA)
assuming net FA = 12.5% of revenues 30 102.5 95.7 114.8 137.8 165.4
4. Dividend (60% of net income) 30 53.9 60.1 71 84.1 99.7
5. Total uses of funds (2+3+4) 110 256.8 213.9 255.5 305.5 365.4
6. External capital required (1-5) 30 144.5 84 101.6 122.6 147.9
Latest and forecasted amounts of external

capital required for Dynamic Mattress
Company
(figures in $ millions).
13-60

2009 2010 2011 2012 2013 2014
Net working capital 190 290.4 348.5 418.2 501.8 602.2
Net fixed assets 250 330 396 475.2 570.2 684.3
Total net assets 440 620.4 744.5 893.4 1072.1 1286.5
Long-term debt 90 234.5 318.5 420 542.7 690.6

Equity 350 385.9 426 473.3 529.4 595.8
Total long-term liabilities and equity 440 620.4 744.5 893.4 1072.1 1286.5
Latest and pro forma balance sheets for

Dynamic Mattress Company (figures in $
millions).
13-61
Preparing a Financial Plan
External
capital = operating - investment - investment - dividends
required cash flow in NWC in FA
• Step 1: Project next year's operating cash flows

• Step 2: Project additional investment in net working capital
and fixed assets
• Step 3: Estimate the difference between projected operating
cash flow and the projected uses
• Step 4: Construct pro forma balance sheet incorporating
additional assets and increases in debt and equity
• Step 5: Performing sensitivity analysis and scenario analysis
13-62
Financial Planning Models

Pro Formas - Projected or forecasted financial
statements.
Percentage of Sales Model - Planning model
in which sales forecasts are the driving
variable and most other variables are
proportional to sales.
Balancing Item - Variable that adjusts to
maintain the consistency of a financial plan.
Also called plug.
13-63
Planners Beware
➢Many models ignore realities such as
depreciation, taxes, etc.
➢Percent of sales methods are not
realistic because fixed costs exist.
➢Most models generate accounting
numbers not financial cash flows
➢Adjustments must be made to consider
these and other factors.
13-64
Growth & External Financing

Sustainable growth rate - Steady rate at which a firm
can grow without changing leverage
retained earnings
Internal growth rate =
net assets
retained earnings net income equity
= x x
net income equity net assets
Sustainable growth rate = plowback ratio x retrun on equity

13-65
Net working capital

1. Given the following data: Total current assets = $852; Total current liabilities
= $406; Long-term debt = $442, calculate the net working capital.
13-66
Cash Budgeting
1. A company has forecast sales in the first 3 months of the year as follows
(figures in millions): January, $60; February, $80; March, $100. 60% of sales
are usually paid for in the month that they take place and 40% in the following
month. Receivables at the end of December were $24 million. What are the
forecasted collections on accounts receivable in March?
month. Receivables at the end of December were $20 million. What are the
forecasted collections on accounts receivable in March?
13-67
Cash Budgeting
are usually paid for in the month that they take place, 20% in the following
month, and the final 10% in the next month. Receivables at the end of
December were $23 million. What are the forecasted collections on accounts
receivable in March?
(figures in millions): January, $200; February, $140; March, $100. 50% of
sales are usually paid for in the month that they take place, 30% in the
following month, and the final 20% in the next month. Receivables at the end
of December were $100 million. What are the forecasted collections on
accounts receivable in March?
13-68
Cash Budgeting
(figures in millions): February, $120; March, $135; April, $90. 65% of sales
month. Receivables at the end of January were $45 million.
a. What are the forecasted collections on accounts receivable in April?
b. What are the receivable at the end of April?
month. Receivables at the end of December were $75 million.
a. What are the forecasted collections on accounts receivable in March?
b. What are the receivable at the end of March?
13-69
Cash Budgeting
month. Receivables at the end of December were $25 million.
a. What are the forecasted collections on accounts receivable in March?
b. What are the receivable at the end of March?

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Principles of

Chapter 10 Corporate Finance

Term Financing Decisions

Year 1 Year 2 Year 3 Time

Term Financing Decisions

Year 1 Year 2 Year 3 Time

Term Financing Decisions

Year 1 Year 2 Year 3 Time

Firm’s Cumulative Capital Requirement

Year 1 Year 2 Time

Lines A, B, and C show alternative amounts of long-term finance.

Strategy A: A permanent cash surplus

2009 2008 2009 2008

Changes in Cash Flows

Cash flows from investing activities:

Cash flows from financing activities:

Increase (decrease) in cash balance 5

Tracing Changes in Cash

Tracing Changes in Cash

Net Working Long-term Fixed

Tracing Changes in Cash

Tracing Changes in Cash

Long-term Current Other Current Fixed

Sources of cash flows

Tracing Changes in Cash

Long-term Current Other Current Fixed

pay long term

Uses of cash flows

Tracing Changes in Cash

Net Working Long-term Fixed

Long-term Current Other Current Fixed

Example – Cash and Working Capital

Transaction Cash Working Cap

Example – Cash and Working Capital

Transaction Cash Working Cap

Example – Source or Uses of Cash

Event Source or Use ?

Example – Source or Uses of Cash

Event Source or Use ?

Example - Dynamic Mattress Company

Event Source or Use ?

Example - Dynamic Mattress Company

Event Source or Use ?

Example - Dynamic Mattress Company

Event Source or Use ?

Example - Dynamic Mattress Company

Event Source or Use ?

Simple Cycle of operations

Receivables Raw materials

Cycle of operations and Cycle of cash

Event Decision to be made

Buy raw materials How much units will be ordered?

Pay by cash Should I lent or use my current cash?

Produce products What technology of production should I choose?

Sell products Should I grant more credit for a particular customer?

Collect cash How to collect receivables?

Cycle of operations and Cycle of cash

Day Event Effect on

Cycle of operations and Cycle of cash

Day Event Effect on