Analisis Laporan Keuangan 3rd

8/4/2019 Analisis Laporan Keuangan 3rd

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Analisis Laporan Keuangan

Analisis Working Capital


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Net Working Capital Working Capital includes a firms current

assets, which consist of cash and marketablesecurities in addition to accounts receivableand inventories.

It also consists of current liabilities, includingaccounts payable (trade credit), notes payable(bank loans), and accrued liabilities.

Net Working Capital is defined as total currentassets less total current liabilities.


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The Tradeoff BetweenProfitability & Risk


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The Cash Conversion Cycle Short-term financial management managing current

assets and current liabilities is on of the financialmanagers most important and time -consumingactivities.

The goal of short-term financial management is tomanage each of the firms current assets and liabilitiesto achieve a balance between profitability and risk

that contributes positively to overall firm value. Central to short-term financial management is an

understanding of the firms cash conversion cycle.


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Calculating the Cash Conversion Cycle

The Operating Cycle (OC) is the time betweenordering materials and collecting cash fromreceivables.

The Cash Conversion Cycle (CCC) is the timebetween when a firm pays its suppliers(payables) for inventory and collecting cashfrom the sale of the finished product.


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Calculating the CashConversion Cycle (cont.)

Both the OC and CCC may be computed asshown below.


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MAX Company, a producer of paper dinnerware,has annual sales of $10 million, cost of goods soldof 75% of sales, and purchases that are 65% of

cost of goods sold. MAX has an average age of inventory (AAI) of 60 days, an average collectionperiod (ACP) of 40 days, and an average paymentperiod (APP) of 35 days.

Using the values for these variables, the cashconversion cycle for MAX is 65 days (60 + 40 - 35)and is shown on a time line in Figure 14.1.


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The resources MAX has invested in the cashconversion cycle assuming a 365-day year are:

Obviously, reducing AAI or ACP or lengtheningAPP will reduce the cash conversion cycle, thusreducing the amount of resources the firm mustcommit to support operations.


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Strategies for Managing the CCC

1. Turn over inventory as quickly as possiblewithout stock outs that result in lost sales.

2. Collect accounts receivable as quickly as

possible without losing sales from high-pressurecollection techniques.3. Manage, mail, processing, and clearing time to

reduce them when collecting from customers

and to increase them when paying suppliers.4. Pay accounts payable as slowly as possiblewithout damaging the firms credit rating.


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Inventory Management:Inventory Fundamentals

Classification of inventories: Raw materials : items purchased for use in the

manufacture of a finished product

Work-in-progress : all items that are currently inproduction

Finished goods : items that have been producedbut not yet sold


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Inventory Management:Differing Views About Inventory

The different departments within a firm (finance,production, marketing, etc.) often have differing viewsabout what is an appropriate level of inventory.

Financial managers would like to keep inventory levelslow to ensure that funds are wisely invested. Marketing managers would like to keep inventory

levels high to ensure orders could be quickly filled. Manufacturing managers would like to keep raw

materials levels high to avoid production delays and tomake larger, more economical production runs.


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Techniques for Managing Inventory The ABC System

The ABC system of inventory management dividesinventory into three groups of descending order of importance based on the dollar amount investedin each.

A typical system would contain, group A would consist of 20% of the items worth 80% of the total dollar value;group B would consist of the next largest investment, andso on.

Control of the A items would intensive because of the highdollar investment involved.


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Techniques for ManagingInventory (cont.)

The Economic Order Quantity (EOQ) Model

Where: S = usage in units per period (year)

O = order cost per order C = carrying costs per unit per period (year) Q = order quantity in units


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The Economic Order Quantity (EOQ) Model Assume that RLB, Inc., a manufacturer of

electronic test equipment, uses 1,600 units of an item annually. Its order cost is $50 perorder, and the carrying cost is $1 per unit peryear. Substituting into the above equation weget:


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The EOQ can be used to evaluate the totalcost of inventory as shown on the following:

Ordering Costs = Cost/Order x # of Orders/Year

Ordering Costs = $50 x 4 = $200

Carrying Costs = Carrying Costs/Year x Order Size2

Carrying Costs = ($1 x 400)/2 = $200

Total Costs = Ordering Costs + Carrying Costs

Total Costs = $200 + $200 = $400


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The Reorder Point Once a company has calculated its EOQ, it must determine

when it should place its orders. More specifically, the reorder point must consider the lead

time needed to place and receive orders. If we assume that inventory is used at a constant rate

throughout the year (no seasonality), the reorder pointcan be determined by using the

following equation: Reorder point = lead time in days x daily usage

Daily usage = Annual usage/360


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The Reorder Point Using the RIB example above, if they know

that it requires 10 days to place and receive anorder, and the annual usage is 1,600 units peryear, the reorder point can determined asfollows:

Daily usage = 1,600 units : 360 days = 4.44units/days Reorder point = 10 x 4.44 units/days = 44.44

or 45 units


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Thus, when RIBs inventory level reaches 45 units, itshould place an order for 400 units. However, if RIBwishes to maintain safety stock to protect against

stock outs, they would order before inventoryreached 45 units.


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Just-In-Time (JIT) System The JIT inventory management system minimizes the

inventory investment by having material inputs arriveexactly at the time they are neededfor production.

For a JIT system to work, extensive coordination must existbetween the firm, its suppliers, and shipping companies toensure that material inputs arrive on time.

In addition, the inputs must be of near perfect quality andconsistency given the absence of safety stock.


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Computerized Systems forResource Control

MRP systems are used to determine what to

order, when to order, and what priorities to assignto ordering materials. MRP uses EOQ concepts to determine how much

to order using computer software. It simulates each products bill of materials

structure all of the products parts), inventorystatus, and manufacturing process.


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Computerized Systems for Resource Control Like the simple EOQ, the objective of MRP systems is to

minimize a companys overall investment in inventorywithout impairing production.

Manufacturing resource planning II (MRP II) is anextension of MRP that integrates data from numerousareas such as finance, accounting, marketing, engineering,and manufacturing using a sophisticated computer system.

This system generates production plans as well asnumerous financial and management reports.


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Computerized Systems for Resource Control Unlike MRP and MRP II, which tend to focus on internal

operations, enterprise resource planning (ERP) systems

can expand the focus externally to include informationabout suppliers and customers.

ERP electronically integrates all of a firms departments sothat, for example, production can call up sales information

and immediately know how much must be produced to fillcertain customer orders.


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Accounts Receivable Management

The second component of the cash conversion cycleis the average collection period the average lengthof time from a sale on credit until the payment

becomes usable funds to the firm. The collection period consists of two parts:

the time period from the sale until the customer mailspayment, and

the time from when the payment is mailed until the firmcollects funds in its bank account.


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Accounts Receivable Management:The Five Cs of Credit

Character: The applicants record of meetingpast obligations.

Capacity: The applicants ability to repay the

requested credit. Capital: The applicants debt relative to equity. Collateral: The amount of assets the applicant

has available for use in securing the credit. Conditions: Current general and industry-

specific economic conditions.


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Accounts Receivable Management:Credit Scoring

Credit scoring is a procedure resulting in ascore that measures an applicants overallcredit strength, derived as a weighted-average

of scores of various credit characteristics. The procedure results in a score that

measures the applicants overall credit

strength, and the score is used to make theaccept/reject decision for granting theapplicant credit.


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Accounts Receivable Management:Changing Credit Standards

The firm sometimes will contemplate changing itscredit standards to improve its returns and generategreater value for its owners.


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Changing Credit Standards Example Dodd Tool, a manufacturer of athlete tools, is

currently selling a product for $10/unit. Sales (allon credit) for last year were 60,000 units. Thevariable cost per unit is $6. The firms total fixedcosts are $120,000.

Dodd is currently contemplating a relaxation of credit standards that is anticipated to increasesales 5% to 63,000 units. It is also anticipatedthat the ACP will increase from 30 to 45 days, and

that bad debt expenses will increase from 1% of sales to 2% of sales. The opportunity cost of tying funds up in receivables is 15%.

Given this information, should Dodd relax its

credit standards?


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Changing CreditStandards Example (cont.)

Present Sales Level (units) 60,000

Proposed Sales Level (units) 63,000

Price/unit ($) 10.00$

Variable Cost/unit ($) 6.00$

Contributin Margin/unit ($) 4.00$Old Receivables Level (days) 30.0

New Receivables Level (days) 45.0 Present A/R Turnover (365/AR) 12.2

Proposed A/R Turnover (365/AR) 8.1

Present Bad Debt Level (% of sales) 1.0%

Proposed Bad Debt Level (% of sales) 2.0%

Opportunity Cost (%) 15.0%

Dodd Tool CompanyAnalysis of Relaxing Credit Standards

Relevant Data


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Additional Profit Contribution from Sales

Old Sales Level 60,000Price/Unit 10.00$

New Sales Level 63,000Variable Cost/Unit 6.00$

Increase in Sales 3,000Contribution Margin/Unit 4$

Additional Profit Contribution from Sales (sales incr x cont margin)$

Dodd Tool Company

Analysis of Rexaxing Credit Standards

Additional Profit Contribution from Sales


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Total VC = VC/Unit X # of Units

Total VC Under the Present Plan 360,000$

Total VC Under the Proposed Plan 378,000$

Average Investment Under Present Plan 29,508$Average Investment Under Proposed Plan 46,667$

Marginal Investment in Accounts Receivable 17,158$

Opportunity Cost 15.0%

Cost of Marginal Investment in Accounts Receivable 2,574$

Dodd Tool Company

Analysis of Rexaxing Credit Standards

Cost of Marginal Investment in Accounts Receivable

Cost of Marginal Investment in A/R = Total VC/Turnover of A/R


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Total Sales under Present Plan 600,000$

Total Sales under Proposed Plan 630,000$

Bad Debt % under Present Plan 1.0%Bad Debt % under Proposed Plan 2.0%

Cost of Bad Debt under Present Plan 6,000$

Cost of Bad Debt under Proposed Plan 12,600$

Cost of Marginal Bad Debts 6,600$

Dodd Tool Company

Analysis of Relaxing Credit Standards

Cost of Marginal Bad Debt

Cost of Bad Debt = Bad Debt % x Total Sales


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Additional Profit Contribution from Sales $

Cost of Marginal Investment in Accounts Receivable Cost of Marginal Bad Debts (6,6

Net Profit From Implementation of Proposed Plan$

Dodd Tool Company

Analysis of Relaxing Credit Standards

Making the Credit Standard Decision


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Changing Credit Terms A firms credit terms specify the repayment terms

required of all of its credit customers.

Credit terms are composed of three parts: The cash discount The cash discount period The credit period

For example, with credit terms of 2/10 net 30, thediscount is 2%, the discount period is 10 days, andthe credit period is 30 days.


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Changing Credit Terms Example MAX Company has an average collection period

of 40 days (turnover = 365/40 = 9.1). Inaccordance with the firms credit terms of net 30,this period is divided into 32 days until thecustomers place their payments in the mail (noteveryone pays within 30 days) and 8 days toreceive, process, and collect payments once theyare mailed.

MAX is considering initiating a cash discount bychanging its credit terms from net 30 to 2/10 net30. The firm expects this change to reduce theamount of time until the payments are placed inthe mail, resulting in an average collection period

of 25 days (turnover = 365/25 = 14.6).


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Changing CreditTerms Example (cont.)


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Credit Monitoring Credit monitoring is the ongoing review of a

firms accounts receivable to determine whethercustomers are paying according to the statedcredit terms.

Slow payments are costly to a firm becausethey lengthen the average collection periodand increase the firms investment inaccounts receivable.

Two frequently used techniques for creditmonitoring are the average collection period andaging of accounts receivable.


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Credit Monitoring:Average Collection Period

The average collection period is the average numberof days that credit sales are outstanding and has twoparts:

The time from sale until the customer places the paymentin the mail, and

The time to receive, process, and collect payment.


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Credit Monitoring:Aging of Accounts Receivable


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Credit Monitoring:Collection Policy

The firms collection policy is its proceduresfor collecting a firms accounts receivablewhen they are due.

The effectiveness of this policy can be partlyevaluated by evaluating at the level of badexpenses.

As seen in the previous examples, this leveldepends not only on collection policy but alsoon the firms credit policy.


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Collection Policy

Analisis Laporan Keuangan 3rd

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