PGDM 2022-24 BATCH

FINANCIAL STATEMENT ANALYSIS

WCM THROUGH SCF CASE: P&G

SESSION 16

Indian Institute of Management

Tiruchirappalli
 SCF case
 Why did P&G want to increase its credit period from
suppliers and what was is expected impact on B/S? How
does SCF impact the balance sheet of Fibria?
 Supply Chain Finance Made Easy.mp4
 SCF and difference between factors and SCF
 What is Factoring.mp4
 Alternatives with Fibria and finally what did they choose and
why? Go to the next slide
 What is the finance principles and theory behind SCF?
 What are the problems which could potentially arise for
P&G from SCF?
PGPM 2022-24 FSA Session 16 WCM THROUGH SCF
2 CASE P& G 8/14/2023
 PGPM 2022-24 FSA Session 16 WCM THROUGH SCF
3 CASE P& G 8/14/2023
 PGPM 2022-24 FSA Session 16 WCM THROUGH SCF
4 CASE P& G 8/14/2023
 It works because
 There is a difference in credit rating between buyer and seller
 P&G rating AA- interest rate between 0.63% and 0.74%
 Fibria in 2015 BBB – interest rate between 1.13% and 2.80%
 Fibria has to carry the interest rate risk and their currency has been going
down w.r.t US$
 Buyer has surplus debt capacity

PGPM 2022-24 FSA Session 16 WCM THROUGH SCF

5 CASE P& G 8/14/2023
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6 CASE P& G 8/14/2023
 PGPM 2022-24 FSA Session 16 WCM THROUGH SCF
7 CASE P& G 8/14/2023
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8 CASE P& G 8/14/2023
 Factoring

PGPM 2022-24 FSA Session 16 WCM THROUGH SCF

9 CASE P& G 8/14/2023
 Difference between SCF and Factoring
 SCF  FACTORING
 Buyer driven  Seller driven
 Charges are usually lower  Charges are higher
 All the suppliers can be  Only selective buyer will
covered be covered (factor would like
 Based on the guarantee of to factor only the good quality
the buyer buyers)
 Without recourse  With or without recourse

PGPM 2022-24 FSA Session 16 WCM THROUGH SCF

10 CASE P& G 8/14/2023
 Alternatives for SCF for Fibria
Sl. ALTERNATIVE ADVANTAGE/ PAGE AND PARA
NO DISADVANTAGE REFERENCE FROM CASE
1 Reduce cash They may not have
cash
2 Increase A/P Need to finance
3 Increase accrued ???
expenses
4 Issue short term Is it possible
debt
5 Issue long term Credit rating
debt
6 Issue equity Dilution of control
PGPM 2022-24 FSA Session 16 WCM THROUGH SCF
11 8/14/2023
7 Reduce P&PE
CASE P& G Not good for long
term
 Off – balance sheet options
Sl. ALTERNATIVE ADVANTAGES/ REFERNCE
No DISADVANTAGES TO PAGE
AND PARA
1 Use P&G Higher cost
discount
2 Factor P&G A/R Higher cost
3 Increase the Not possible
price of pulp
4 Use SCF Best alternative
programme

PGPM 2022-24 FSA Session 16 WCM THROUGH SCF

12 CASE P& G 8/14/2023
  What is the finance principles and theory behind SCF?

 What are the problems which could potentially arise for

P&G from SCF?

PGPM 2022-24 FSA Session 16 WCM THROUGH SCF

13 CASE P& G 8/14/2023
 Summary of case
 Impact of increase in A/P for a company on its Balance sheet
 What is factoring and SCF?
 Concepts behind SCF
 Alternatives to SCF

PGPM 2022-24 FSA Session 16 WCM THROUGH SCF

14 CASE P& G 8/14/2023
 PGPM 2022-24 FSA Session 16 WCM THROUGH SCF
15 CASE P& G 8/14/2023