OPTIMAL CASH BALANCE (OCB)

Average Cash Balance

Number of Transaction Per year

Holding Cost

Transaction Cost

Total Costs of Cash Balance

OPERATING CYCLE

CASH OPERATING CYCLE

OCB/2

Annual Cash Requirement/ OCB

= Average Cash Balance* Opportunity Cost

=Number of transactions*cost per transaction

=Holding Cost + Transaction Cost

= INVENTORY CONVERSION PERIOD + RECIEVABLE COLLECTION PERIOD

= INVENTORY CONVERSION PERIOD + RECIEVABLE COLLECTION PERIOD-PAYABLE DEFERAL PERIOD

OR = OPERATING CYCLE - PAYABLE DEFERAL PERIOD

FLOAT
( TOTAL NUMBER OF DAYS TO RECEIVE & DEPOSITS) - (DECREASE IN FLOAT TIME)
*AVERAGE DAILY RECIEPTS
=REDUCTION IN FLOAT

REDUCTION IN FLOAT
* RATE OF RETURN
= AMOUNT OF RETURN

LOCKBOX COST
- AMOUNT OF RETURN
= IF NEGATIVE IT IS NET DISADVANTAGE
EXCESS CASH
BREAK EVEN YIELD

INTEREST =PRINCIPAL*RATE*TIME
Total Ordering Cost

Average inventory
Total Carrying Cost

Total Inventory Cost

Number of order

Reorder point
Average daily requirement/ Average Usage
Normal Lead Time Usage

If no safety stock Requried

Safety Stock

If Safety Stock is Required

= (Number of order) * Ordering cost per order

= ( EOQ or order size)/2

= (Average Inventory * Carrying Cost Per Unit)

= Total Ordering cost + Total Carrying Cost

=Annual demand Units/EOQ

=Annual Requirement/365
=Average Daily Requirement* Lead time

Reorder point = Normal Lead Time Usage

= (Maximum Lead Time - Normal Lead time)*Average Daily Requirement

Reorder point = Normal Lead Time Usage + Safety Stock

or Reorder point = Maximum Lead time * Average Daily Requirement
Average AR

Average Investment In AR

Average Collection Period

Variable cost Ratio

Incremental Sales

Sales
Variable cost
Contribution Margin
Net Income

Daily Sales
Average Investment in AR ( Decrease in Average AR)
Decrease in OPPORTUNITY COST (Savings from Finances)
= Average Collection Period * Average Daily Sales
or = Net Credit Sales/ AR Turnover

=Average AR * Variable Cost Ratio

= No. of Days * % of Customer availing terms

= Variable cost per unit / Selling price per unit

New sales - Old sales

=Units*Selling Price
= Units*Variable cost per Unit
= Sales - Variable Cost
= Contribution Margin - (Fixed Cost, Collection Cost, Bad Debts, etc.)

Net Benefit = Net Income - Opportunity cost

= Net Credit Sales/ (360 or 365)

= Daily Sales * Decrease in Average Collection Period
= AVERAGE INVESTMENT AR * RATE OR RETURN
 AR Turnover = Net Credit Sales / Average accounts AR
Average Collection Period = 360 / Ar Turnover or
= Average AR/ Average Daily Sales
Average Daily Sales = Net Credits Sales/ 360

Inventory Turnover
Merchandise inventory Turnover = COGS/Average Merchandise Inventory
Finished Good Inventory Turnover = COGS/ Average Finished Goods Inventory

Average Sale Period = 360/ Inventory Turnover

Daily Sales = Sales/ (360 or 365)

Average AR = Daily Sales * Average Collection Period
Average Investment In AR =Average AR * Variable Cost Ratio
OPPORTUNITY COST = AVERAGE INVESTMENT AR * RATE OR RETURN

unity cost
Asset Turnover = NetSales/ Total Average Assets
AR Turnover = Net Credit Sales / Average accounts AR
Average Collection Period = 360 / Ar Turnover or
= Average AR/ Average Daily Sales
Average Daily Sales = Net Credits Sales/ 360

Inventory Turnover
Merchandise inventory Turnover = COGS/Average Merchandise Inventory
Finished Good Inventory Turnover = COGS/ Average Finished Goods Inventory

Average Sale Period = 360/ Inventory Turnover

Payable Turnover = Net Purch/ Average AP

Payable Deferral Period = 360/ Payable Turnover
Average Ar include bad debt expense