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Prepared By:

NURASMIRA BINTI MOHAMAD FAUDZI

M. AMIRULHISHAM B. M. AKHIR

Mr. MOHAMED ARIFF BIN ABDUL RAHMAN

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Reason for Hold Cash Transaction

Precautionary

Speculative

Compensating balances

Payments for:1.Purchases 2.Wages 3.Dividends Cash in hand to be used during unexpected situations or purposes.

1. Take advantage of investment 2. Bargain purchases

Needed for loans BUT:1.Must have minimum balance of money in bank account 2.Subject to certain conditions

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APP

0 day

50 days

80 days

AAI Purchase raw materials

How it happen ?

Operating cycle

Paid to the supplier

110 days

ACP

Cash cycle Produce product

150 days

Sold the product

Received cash from customer

Given that Ali purchase raw materials on credit to made fertilizers . He paid to the supplier after 50 days of purchased. Then, his factory only needed 80 days to made the fertilizers. The product will be sold after 30 days of making. However, the cash will be received after 40 days of sales. Notes: APP-Average Payment Period AAI-Average Age of Inventory ACP- Average Collection Period 0 days to 150 days are operating cycle 50 days to 150 days are cash cycle

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PLEASE PLEASEREMEMBER REMEMBER !! Cash cycle (CC) = Average Age of Inventory (AAI) + Average Collection Period (ACP) – Average Payment Period (APP)

CC = AAI + ACP - APP Average Payment Period =

Notes Payable Credit Purchases

x 360@365

Cash CashTurnover Turnover(CTO) (CTO)==

Minimum Operating Cash (MOC) =

Forgone Discount =

360 360@ @365 365 Cash CashCycle Cycle(CC) (CC)

Annual Outlays Cash Turnover (CTO)

Discount (D) 100 – Discount (D)

X

360 @ 365 Cash Period (CP) – Discount Period (DP) 10


Increase Average Payment Period APP

By: Delay payment on account payable

Periodpolicy, Decrease Average Collection By: Restrict ACP

Give discount allowed

AAI

By: Do promotion, Decrease Average Age of Inventory

Increase marketing, Maximize uses of machine 11


mple Past Year Question of Cash Management January 2012, Question 7(b). The purchase of newly ordered raw materials by Mewah Wangsa Corporation is on the 2nd of April and the goods will be sold on the 20th of July. The payment is on a credit term of 7/10 net 45. given RM20,000 monthly sales, total account receivables of RM30,000 and outlays of RM35,000. Determine: i)

The length of Mewah Wangsa Corporation’s cash cycle.

Cash Cycle(C.C)

=

Average Age of Inventory (AAI) + Average Collection Period (ACP) – Average Payment Period ( APP)

Because ACP does not provide in question, calculated by: Average Collection Period(ACP) = [AccountReceivable(debtor)/credit sales] x 365

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 

Cont..

Average Collection Period(ACP)= [AccountReceivable(debtor)/credit sales] x 365 ACP = [30 000/(20 000 X 12)] x 365 =(30 000/240 000) x 365 = 45 days Cash cycle= Average Age of Inventory (AAI) + Average Collection Period (ACP) – Average Payment Period (APP) Cash Cycle (C.C) = 109 days+ 45 days – 45 days = 109 days C.C

APP

0 day 2/4

Purchase of raw materials

45 days

109 days 20/7

AAI Paid to supplier

Product sold

ACP

154 days

Received cash (net 45 =received full payment after 45 days sold) 13


Use 365 as in ACP

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Bonds or stocks for which there is an active market and hence a reliable market value.

Liquid assets

Please make sure!

BECAUSE

Can be converted into cash easily and quickly.

Always CURRENT ASSETS

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To prevent bankruptcy. Good relation with bank.

Good relation with trade creditors and suppliers. To lead a strong credit rating.

To meet unexpected cash expenditure. •

To maintain balance level. 17


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1. 

T-bills

free. 

2.

Lowest risk due to risk 

T-notes

Obligations of the

Treasury Department.

Mostly mature in 91-182

days with longer maturity such as 9 months or 1 year. 

Initial maturities between 1 to 7 years.

In denomination of RM1,000.

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JUN 2012 – QUESTION 2 (b)

ď ą There

are various marketable securities with different characteristics in the money market. Explain three (3) examples of marketable securities available.

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1. 1.Bank Bankacceptance acceptance  AAdraft draftdrawn drawnon onaaspecific specificbank bankby byan an exporter exporterin inorder orderto toobtain obtainpayment payment for goods for goodsshipped shippedto toaacustomer, customer,who who maintains maintainsan anaccount accountwith withspecific specificbank. bank. 2. 2.Commercial Commercialpaper paper AAshort-term short-termunsecured unsecured promissory promissorynote noteissued issuedby byaalarge large firm firmwith withhigh highcredit creditstanding. standing. 3. 3.Negotiable Negotiablecertificate certificateof ofdeposits deposits AAnegotiable negotiableinstrument instrumentas asan anevidence evidence of ofdeposit depositin inaacommercial commercialbank. bank.

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JANJI MESTI DITUNAIKAN “Dan sempurnakanlah perjanjian (dengan Allah dan dengan manusia). Sesungguhnya perjanjian itu akan ditanya� [Surah Al-Israk : 34]

Allah SWT juga telah menerangkan di dalam Al-Quran bahawa orang-orang yang menyempurnakan janjijanjinya apabila berjanji sifatnya ini adalah sifat orang yang benar (beriman dan mengerjakan kebajikan) dan juga orang-orang yang bertakwa. [Surah Al-Baqarah : 177] 25


MENUNDUKKAN PANDANGAN

Menjaga mata bukan hanya pada aurat yang terdedah, malah mata juga mesti dijaga daripada melihat harta orang lain kerana sering kali penyakit hati bersarang di hati seseorang selepas melihat benda-benda yang berada di tangan orang lain.

“Janganlah sekali-kali kamu menatap kenikmatan hidup yang Kami berikan kepada beberapa golongan antara mereka (orang kafir). Dan janganlah kamu bersedih hati terhadap mereka. Sebaliknya, hendaklah kamu merendah diri terhadap orang yang beriman.� [ Surah Al-Hijr : 88 ] 26


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CHAPTER 4