Tools in Managing Cash,

Receivables, and Inventory

 Sales Budget
• The most important account in the financial
statement in making a forecast is sales since most
of the expenses are correlated with sales.
 External and Internal factors should be considered in
forecasting sales:
INTERNAL EXTERNAL
• Gross Domestic Product • production capacity
(GDP) growth rate • man power requirements
• Inflation • management style of
• Interest Rate managers
• Foreign Exchange Rate • reputation and network of
• Income Tax Rates the controlling stockholders
• Developments in the • financial resources of the
industry company
• Competition
• Economic Crisis
• Regulatory Environment
• Political Crisis
 Production Budget
• A production budget provides information regarding the
number of units that should be produced over a given
accounting period based on expected sales and targeted
level of ending inventories.

• Required production in units = Expected Sales + Target Ending

Inventories - Beginning Inventories
 Cash Budget

• For a business enterprise, having the right amount of

cash is important since cash is used to make payments
for purchases, for operational expenses, to creditors,
and for other transactions.
• - The cash budget forecasts the timing of these cash
outflows and matches them with cash inflows
from sales and other receipts. The cash budget is also
a control tool to monitor the way the company handles
cash.
 Projected Financial Statements

• Projected financial statements is a tool of the

company to set an overall goal of what the company’s
performance and position will be for and as of the end
of the year. It sets targets to control and monitor the
activities of the company.
‣ Projected Income Statement
‣ Projected Statement of Financial Position
‣ Projected Statement of Cash Flows
Financial Planning Tools and Concepts
 Days of Inventory

• or inventory conversion period or average age of

inventories, is the average number of days to sell its
inventory
Days of Inventory = 365 (or 360 days) / Inventory Turnover

• Inventory Turnover = Cost of Goods Sold

Beginning Inventory + Ending Inventory
2
Days of Inventory = Average Inventory/ Average COGS per day
 Days of Sales Outstanding

• the average time for the company to collect its receivables

Days of Inventory =360 (or 365 days) / Receivable
Turnover

Receivable Turnover = Net Credit sales

Beginning and Ending Accounts
Receivables/2
 Cash Conversion Cycle

• also called the net operating cycle

• The Cash Conversion Cycle is the length of time it takes for
the initial cash outflows for goods and services purchased
(materials, labor, etc.) to be realized as cash inflows from
sales (cash sales and in the collection of receivables).
operating cycle less days of payable.
Cash Conversion Cycle = Operating Cycle - Days of
Payables
Cash Conversion Cycle = (Days of Inventory + Days of
Receivables) - Days of Payables
 Days of Payable Outstanding
• is the average number of days for the company to
pay its creditors.
Days of Inventory = 365 (360 days) /Payable Turnover

Payable Turnover = Net Credit Purchases

Beginning + Ending Accounts
Payables/2