Multiple Choice Questions

• The workings for the questions 3,5,6 and 8 are below:

3) The firms accounts payable = (DPO * Purchases)/360
= (85 * 55,000)/360
Accounts Payable = 12,986

5) Firms always tend to maximise sales and minimise costs in their profitability calculations. This could arise
from either paying the salary of an individual maintaining the accounts receivable or costs related to software
maintaining the same. Actual profits can only be calculated when the all costs have been taken into account.

6) The net profit of 120 € is allocated between reserves, payment of dividend, and increase in shareholders'
equity. Out of the three actions, ONLY payment of dividend leads to a cash flow, as the others are non-cash
allocations. 1/3rd of 120 € works out to 40 €, which is an outflow. Therefore, overall CASH outflow is 40 €.

8) Severance fund is the fund that is set aside to pay employees upon wilfull resignation of forced seperation
from the employer. Corporate bonds on the hand, are not funds that have to be paid due to direct operation of
the company. However, in the liquidity criteria they are considered same,because cash should be disbursed
most likely inthe same operating cycle. SF is a type of an internal fund and corporate bonds usually have
payment due within the same operating cycle.
 MangiaBene S.p.A’s cash budget

• Debt-Equity Ratio = (3309.125+6000)/2000

= 4.654
• 4.6 is a very high Debt-Equity ratio, making it a debt bound company.
• It should try to decrease its Sales Credit time and for the customers asking for time beyond window, it
should ask for an Interest.
• It should also try to achieve a longer credit window by negotiating with the suppliers.
• The loan sanctioned is not sufficient and an additional sanction of 1809,125 is required.

Assumptions:

• Loans borrowed on the last date of the month

• Sale of Inventories is included in the sales table
• Interest cost of Short Term Bank debt of 5750 not factored in due to no information on interest rates
 Takeaways from the course

The 8 session course of Financial Planning & Budgeting has been immensely helpful, as I had no prior experience
studying these concepts.

My key takeaways from this course are:

• The analysis of cash flow statement helped understand how much of the profit earned by a company is actually
translated to a cash inflow.

• The cash budget emphasized on the importance of adequate cash management system for companies.

• The financial viability of investments that are measured using Net Present Value and Internal Rate of Return
helps analyse decision from a long term perspective rather focusing only on the short-term benefits. The time
value of money and inflation aspects significantly impact a firm’s investment decisions.