Примерный перечень вопросов к экзамену

Вопрос (на русском языке) Вопрос (на английском языке)

9 Управление оборотным капиталом, влияние на Identify the objectives of working capital
ликвидность и доходность, конфликты между management in terms of liquidity and
данными целями. Примеры profitability, discuss the conflict between
them. Examples.
10 Обсудите, примените и оцените Discuss, apply and evaluate the use of rel-
эффективность различных способов evant techniques in managing inventory,
управления запасами, в том числе моделей including the Economic Order Quantity
EOQ, JIT. model and Justin-Time techniques.
Факторинг и invoice disounting как варианты Factoring and invoice discounting as
управления оборотным капиталом: working capital management options: em-
эмпирические исследования эффективности. pirical studies
11 Уровень инвестиций в оборотный капитал и The level of working capital investment in
факторы, влияющие на этот уровень: current assets. Discuss the key factors de-
i) операционный цикл и торговые условия termining this level, including:
ii) политика организации в отношении уровня i) the length of the working capital cycle
инвестиций в текущие активы and terms of trade
iii) индустрия ii) an organisation’s policy on the level of
investment in current assets
iii) the industry in which the organization
operates
12 Период окупаемости, преимущества и Calculate payback period and discuss the
недостатки использования для оценки usefulness of payback as an investment
инвестиционной привлекательности проекта. appraisal method. Discounted payback
Дисконтированный период окупаемости. period. Industrial examples.
Отраслевые примеры.

9. Identify the objectives of working capital management in terms of liquidity and profita-
bility, discuss the conflict between them. Examples.
By the definition working capital, also known as net working capital, is the difference between a
company’s current assets, like cash, accounts receivable (customers’ unpaid bills) and invento-
ries of raw materials and finished goods, and its current liabilities, like accounts payable. By its
general sense working capital is the amount of cash flows reserved by the company to perform
its everyday activities and meet its current obligations (eg for buying more inventory for achiev-
ing its optimal level, reserve for increasing trade receivables if needed, money to pay for current
obligations (trade payables, interest, etc).
An example explaining why WC is needed (WC should cover need for funding in full, if not –
the company runs out of liquidity):

Working Capital = Current Assets - Current Liabilities

Factors affecting WC level
Earnings without

Capital increase
 Increase of stable equities and lia- Long-term borrowing
bilities

 Underinvestment
Disposals
 Losses
 Decrease of stable equities liabili- Deleveraging
ties
Benefit distribution
 Acquisitions

However, the question of WC management is connected not only with liquidity issues, but also
with profitability. Lower is WC, more free cash flow company has on hand for the development
of the company, investments and other financial needs, which will bring more profit. It as a very
difficult task to do as the increase in liquidity and an increase in profitability are directly oppo-
sitely connected: you can either increase liquidity by increasing WC or increase profitability by
decreasing WC and getting more free cash flows. Finding the optimal level of WC to keep both
high is a difficult task which among all depends on the experience of the company.
WC ratio analysis
 Duration ratios : days in …
 Inventory of raw materials = inventory of RM / RM purchases * 360
 Inventory of finished products = inventory of FP / Tax free sales * 360
(Days of inventory on hand DOH)
 Trade receivable = trade receivable / Sales including tax * 360
(Days of sales outstanding DSO)
 Trade payable = Trade payable / Purchases including tax * 360
Remark : Turnover = 360 / Duration
So, the explicit goal of the company is to keep WC as low as possible to still meet its short-term
needs.
The need of WC management in Russia especially after 2014 crisis is conditioned by the exter-
nal factors, such as:
- Reduction of consumer demand
- Reduction of investments into economy
- Reduction of the capital market
- Increase in the cost of loan financings
- Restriction of access to foreign capital markets

In these conditions the main goals of the company are:

- Maintenance of continuous liquidity
- Creation of conditions for steady growth the companies taking into account strategy and
level acceptable risk
- Ensuring balance cash flows
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 - Decrease in financial risks
- Improvement of quality of forecasting
- Maximizing profitability and increase in productivity
Effective WC management allows
- Release of money and their investment into development of the company
- Reduction of level of a debt load and improvement of a financial position of the company
- Increase in accuracy of planning
- Growth of cost of the company
Examples of WC management:
How to: To pay trade payables later.
Example: Average daily payments to suppliers are 15 million rubles, at the same time, average
delay of payment is 10 days. After revision of purchases policy, the company limited signing of
the contracts of purchase on prepayment conditions that allowed to increase an average delay of
payment by 5 days.
Benefit: Increase in an average payment delay allowed to increase average balance of liquidity
on 75 million rubles. Estimated financial result from the change will be: 9.4 million rubles.

10. Discuss, apply and evaluate the use of relevant techniques in managing inventory, in-
cluding the Economic Order Quantity model and Just-in-Time techniques. Factoring and
invoice discounting as working capital management options: empirical studies
Inventory management is a collection of tools, techniques, and strategies for storing, tracking,
delivering, and ordering inventory or stock. A large amount of capital, if not the majority of a
company’s capital is wrapped up in their inventory. For that reason, it’s incredibly important to
control the coming and going of inventory as best you can to minimize losses and maximize
profits – which is where inventory management techniques come into play.
EOQ
Economic order quantity is the lowest amount of inventory you must order to meet peak cus-
tomer demand without going out of stock and without producing obsolete inventory.
Its purpose is to reduce inventory as much as possible to keep the cost of inventory as low as
possible.
To calculate Economic order quantity you should use three variables: demand, relevant ordering
cost, and relevant carrying cost. Use them to set up an EOQ formula:
 Demand: The demand, in units, for the product for a specific time period.
 Relevant ordering cost: Ordering cost per purchase order.
 Relevant carrying cost: Carrying costs for one unit. Assume the unit is in stock for the time
period used for demand.
Note that the ordering cost is calculated per order. The carrying costs are calculated per unit.
Here’s the formula for economic order quantity:

Q is the economic order quantity (units). D is demand (units, often annual), S is ordering cost
(per purchase order), and H is carrying cost per unit.
Just In Time Inventory Management
Just-in-Time Inventory Management is simply making what is needed, when it’s needed, in the
amount needed. Many companies operate on a “just-in-case” basis – holding a small amount of
stock in case of an unexpected peak in demand. Especially, in automobile industry like Toyota
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and other Japanese companies. Also, IKEA. However, all over the world it is not the most popu-
lar method of inventory management as it highly increases risks.
JIT attempts to establish a “zero inventory” system by manufacturing goods to order; it operates
on a “pull” system whereby an order comes through and initiates a cascade response throughout
the entire supply chain – signaling to the staff they need to order inventory or begin producing
the required item.
Here are some of the benefits of just-in-time inventory:
 Minimize costs such as rent and insurance by reducing your inventory
 Less obsolete, outdated, and spoiled inventory
 Reduce waste and increase efficiency by minimizing or eliminating warehousing and stock-
piling, while maximizing inventory turnover
 Maintain healthy cashflow by ordering stock only when necessary
 Production errors can be identified and fixed faster since production happens on a smaller,
more focused level, allowing easier adjustments or maintenance on capital equipment
However, despite all its advantages, this system is highly increases the external risks of the com-
pany, so it’s relatively rarely used by the companies.
(Invoice) Factoring
Sometimes there’s a gap between when you finish a job and send an invoice and when the client
returns payment. Factoring is a short-term financing method where you effectively ‘sell’ your
outstanding invoices to a third-party commercial finance company.
The terms of factoring deals are different in many situations, but most factors advance busi-
nesses between 60 and 80 percent of the value of the invoices. You get your cash, and the factor
takes on the responsibility for getting payment from those customers, managing the credit con-
trol of the business, and processing invoice payments. This means that your customers will be
aware of your relationship with the factor. In other words, they will know that you are using in-
voice factoring as a short-term financing method.
Invoice Discounting
Like factoring, invoice discounting is a form of short-term borrowing against your outstanding
invoices. It is usually used to help improve a company’s working capital and cash flow position.
With invoice discounting, you maintain responsibility for your sales ledger, payment chasing,
and invoice processing. As a result, your customers are unlikely to be aware of your relationship
with the lender.

Factoring and Invoice Discounting are both financial services that can release the funds tied up
in your unpaid invoices, involving a provider who agrees to advance money against outstanding
debtor balances. The essential difference between Factoring and Invoice Discounting lies in
who takes control of the sales ledger and responsibility for collecting payment.
A usage of the optimal inventory management system can be illustrated by the following exam-
ple:
How to: To reduce periods of storage of stocks.
Example: Average rest of raw material inventories and ready products makes 200 million ru-
bles. Average term storages of stocks are made by 30 days. The company accepted new policy
on charge reserves on stocks with storage period more than 180 days. Dependence of financial
result on periods of storage stocks influenced the decision of department of logistics about
revision of approach to planning of the remains that allowed to reduce the volume of stocks by
10%.
Benefit: Decrease in volume of the stored stock allowed to increase average balance of liquidity
by 20 million rubles. Estimated financial result from introduction new approach will make: 2.5
million rubles a year.

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11. The level of working capital investment in current assets. Discuss the key factors deter-
mining this level, including: i) the length of the working capital cycle and terms of trade ii)
an organisation’s policy on the level of investment in current assets iii) the industry in
which the organization operates
Overall working capital policy considers both a firm’s level of working capital investment and
its financing. In practice, the firm has to determine the joint impact of these two decisions upon
its profitability and risk. However, to permit a better understanding of working capital policy, the
working capital investment decision is discussed in this section, and the working capital financ-
ing decision is discussed in the following section. The two decisions are then considered to-
gether.
The size and nature of a firm’s investment in current assets is a function of a number of different
factors, including the following:
i) the length of the working capital cycle and terms of trade: It starts from purchase of raw mate-
rials and is completed with the production of finished goods. The manufacturing cycle involves a
longer period of the need for working capital will be more, as funds tie-up for longer period.
ii) an organisation’s policy on the level of investment in current assets
iii) the industry in which the organization operates. Demand of industry: It ensures the creditors,
as they want, their obligations are sufficiently covered.
 The type of products manufactured
 The sales level (because higher sales require more investment in inventories and receiva-
bles)
 Inventory policies (for example, the amount of safety stocks maintained; that is, inventories
needed to meet higher than expected demand or unanticipated delays in obtaining new in-
ventories)
 Credit policies
There are two main current asset investment strategies- restrictive and relaxed:
1. Restrictive Current Asset Investment Strategy
When using a restrictive current asset investment strategy a company will maintain a low level
of current assets relative to sales. Accounts Receivables (A/R) are kept low and inventory is
managed as tightly as possible. This strategy may have a negative impact on sales as shorter
A/R terms are less flexible and a smaller selection of inventory is held to meet consumer de-
mand. However, this restrictive strategy can sometimes be the most profitable as fewer funds
are invested in current assets leading to a larger return on investment, as long as the savings from
tighter A/R terms and inventory exceeds lost sales.
2. Relaxed Current Asset Investment Strategy
Contrary to the restrictive strategy, a relaxed current asset investment strategy leads to a com-
pany maintaining a higher level of current assets relative to sales. Using this strategy, the com-
pany will keep a higher level of A/R and inventory. Given the larger investment in current assets
the company may have a relatively lower return on investment. However, this strategy may lead
to a larger current ratio (current assets/current liabilities), increase liquidity, and lower the risk of
lost sales due to the extension of A/R terms and less inventory depletion with the increased in-
ventory.
To choose the optimal policy, the company should project EBIT and sales, and, based on the two
main investment strategies, select two, three or more possible strategies. In the example, we take
three. The aggressive policy would yield the highest expected rate of return on total assets,
whereas the conservative policy would yield the lowest rate of return. The aggressive policy
would also result in a lower net working capital position ($15 million) than would the conserva-
tive policy ($25 million). Using net working capital as a measure of risk, the aggressive policy is
the riskiest and the conservative policy is the least risky. The current ratio is another measure of
a firm’s ability to meet financial obligations as they come due. The aggressive policy would
yield the lowest current ratio, and the conservative policy would yield the highest current ratio.
The optimal level of working capital investment is the level expected to maximize shareholder
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wealth. It is a function of several factors, including the variability of sales and cash flows and the
degree of operating and financial leverage employed by the firm. Therefore, no single working
capital investment policy is necessarily optimal for all firms.
In practice, however, this assumption may not be completely realistic because a firm’s sales are
usually a function of its inventory and credit policies. Higher levels of finished goods inventories
and a more liberal credit extension policy —both of which increase a firm’s investment in cur-
rent assets—may also lead to higher sales. This effect can be incorporated into the analysis by
modifying the sales and EBIT projections under the various alternative working capital policies.
Although changing these projections would affect the numerical values contained in, it does not
affect the general conclusions concerning the profitability versus risk trade-offs.

12. Calculate payback period and discuss the usefulness of payback as an investment ap-
praisal method. Discounted payback period. Industrial examples.
PP – Payback Period. Payback is perhaps the simplest method of investment appraisal. The pay-
back period is the time it takes for a project to repay its initial investment. Payback is used meas-
ured in terms of years and months, though any period could be used depending on the life of the
project (e.g. weeks, months).
The payback period of a given investment or project is an important determinant of whether to
undertake the position or project, as longer payback periods are typically not desirable for invest-
ment positions. Much of corporate finance is about capital budgeting. One of the most important
concepts that every corporate financial analyst must learn is how to value different investments
or operational projects. The analyst must find a reliable way to determine the most profitable
project or investment to undertake. One way corporate financial analysts do this is with the pay-
back period.
Payback period - the length of time required to recover the cost of an investment.

PP = min N, at which PP = Io / CFn

The main advantages and disadvantages of using Payback as a method of investment appraisal
are as follows:
Advantages of Payback
 Simple and easy to calculate + easy to understand the results
 Focuses on cash flows – good for use by businesses where cash is a scarce resource
 Emphasises speed of return; may be appropriate for businesses subject to significant mar-
ket change
 Straightforward to compare competing projects

Disadvantages of Payback
 Ignores cash flows which arise after the payback has been reached – i.e. does not look at
the overall project return
 Takes no account of the "time value of money"
 May encourage short-term thinking
 Ignores qualitative aspects of a decision
 Does not actually create a decision for the investment

Discounted payback period is next level of payback period where the cashflows are discounted
before calculating the period of payback. Some companies prefer to calculate the payback period
as it considers the time value of money.

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The discounting can be done using the WACC (Weighted average cost of capital) or IRR (In-
ternal rate of return) or bank rate company got the lending or government risk-free bond rate.
The most appropriate rate to discount cash flows is WACC (Weighted average cost of capital) or
IRR (Internal rate of return).

In contrast with PP, for calculation of DPP discounted cash flows are considered:

After that, the formula for PP is applied with an exception that discounted cash flows are used
instead
OR you can use the formula for DPP directly:

Examples of Appropriate Payback periods

 Small electronic equipment: 1 - 2.5 years

 Small to medium industrial plant and equipment: 1 - 3 years
 Mobile plant and equipment: 2 - 5 years
 Medium to large plant and equipment: 2 - 5years
 Medium to large Production plant: 5 - 10 years
 Large production facilities and high tech production facilities: 10 - 15 years
 Large scale mining projects: 10 - 20 years