WORKING

CAPITAL
MANAGEMENT
AND FINANCIAL
FORECASTING
 TABLE OF CONTENTS
CAPITAL WORKING CAPITAL FIVE FINANCIAL
LEVERAGE
STRUCTURE MANAGEMENT STAGES OF LIFE

11 33 55 77

22 44 66

DISTRIBUTION TO FINANCIAL
DIVIDEND
SHAREHOLDERS, PLANNING AND
POLICY
DIVIDENDS AND FORECASTING
SHARE
REPURCHASE
Capital Structure
“
The capital structure is the particular combination
of debt and equity used by a company to finance its
overall operations and growth. Equity capital arises
from ownership shares in a company and claims to its
future cash flows and profits. Debt comes in the form
of bond issues or loans, while equity may come in the
form of common stock, preferred stock, or retained
earnings. Short-term debt is also considered to be part
of the capital structure.
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Types of Capitalization
Structures

Firms can either issue either more debt or equity to fund its operations. By
issuing equity, firms give up some ownership in the company without the need to
pay back investors; by issuing debt, companies increase their leverage by
needing to pay back investors. A company's debt-to-equity ratio is a measure of 4
 Dividend Policy
A dividend policy is the policy a
company uses to structure
its dividend payout to shareholders.
Some researchers suggest the
dividend policy is irrelevant, in
theory, because investors can sell a
portion of their shares or portfolio
if they need funds. This is
the dividend irrelevance theory,
which infers that dividend
payouts minimally affect a stock's
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https://www.investopedia.com/terms/d/dividendpolicy.asp
TYPES OF DIVIDEND POLICY
REGULAR DIVIDEND STABLE DIVIDEND
POLICY POLICY
The company pays out Percentage of profits paid
dividends to its out as dividends is fixed
shareholders every year
IRREGULAR DIVIDEND
POLICY
NO DIVIDEND
the company is under no POLICY
obligation to pay its
The company doesn’t
shareholders and the board of
distribute dividends to
directors can decide what to do
shareholders
with the profits

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LEVERAGE

▸ Leverage results from using borrowed capital as a

funding source when investing to expand the
firm's asset base and generate returns on risk
capital. Leverage is an investment strategy of
using borrowed money—specifically, the use of
various financial instruments or borrowed capital
—to increase the potential return of an
investment.

▸ Leverage can also refer to the amount of debt a

firm uses to finance assets.
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DISTRIBUTION
TO
SHAREHOLDER
S, DIVIDENDS
AND SHARE
REPURCHASE
WHAT IS
DISTRIBUTION
POLICY?
● The distribution policy defines:
○ The level of cash distributions
to shareholders
○ The form of the distribution
(dividend vs. stock repurchase)
○ The stability of the distribution
 Three general theories on investor preference for
dividends

DIVIDEND BIRD-IN-THE-
RELEVANCE TAX
HAND THEORY PREFERENCE
THEORY
Investors are indifferent
Investors think
between dividends and LowTHEORY
payouts mean
retention-generated capital dividends are less
gains. If they want cash, they higher capital gains.
risky than potential
can sell stock. If they don’t Capital gains taxes
want cash, they can use future capital gains,
are deferred.
dividends to buy stock. hence they like
dividends
Definition of
working
capital and
financial
forecasting
What are the things we should
know
 Working Capital Management
Working capital management is a business strategy
designed to ensure that a company operates efficiently
by monitoring and using its current assets and liabilities
to the best effect
Working capital management is essentially an accounting
strategy with a focus on the maintenance of a sufficient
balance between a company's current assets and
liabilities. An effective working capital management system
helps businesses not only cover their financial obligations
but also boost their earnings.
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https://www.investopedia.com/terms/w/workingcapitalmanagement.
Classification or Kinds of Working
Capital

Kinds of
Working Capital

Concept
Basis
Time Basis

Gross Working Net Working Permanent/Fix Temporary/Variable

Capital Working Capital Working Capital
Capital

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Remember
!
The goal of working capital
management is to manage the firm’s
current assets and liabilities in such
a way that a satisfactory level of
working capital is maintained.
The interaction between current
assets and current liabilities is,
therefore the main theme of the
theory of the working capital
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management.
 Financial forecasting
Financial forecasting is the process by which a company
thinks about and prepares for the future. Forecasting
involves determining the expectations of future results.
 

A financial forecast gives businesses access to cohesive

reports, allowing finance departments to establish business
goals that are both realistic and feasible. It also gives
management valuable insights into the way the business
performed in the past and the way it will compare in the
future. 15
https://www.investopedia.com/ask/answers/difference-between-financial-forecasting-and-financial-modeling
 FR
5 Financial Stages of Life
Project analysis slide 3

Early Mid Pre Early Late

Career Career Retirement Retirement Retirement
 EARLY CAREER
▸ Financial success in your 20s and 30s ties is all about building good financial habits and
staying out of debt. In this phase of life, you might be attending university, meeting a
life partner, and exploring your career options. If spending outstrips income, budgeting
and debt management become critical.

During your early career, financial planning should consist of managing cash flow by:
▸ Learning to spend less than you earn
▸ Building savings
▸ Purchasing or saving up for a home
▸ Paying off high-interest debt, student loans and other debt
▸ Contributing to an employer-sponsored 401(k)
▸ Creating a financial plan with clear short-term, mid-term and long-term goals
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 MID CAREER
▸ As you get settled in your career, your income will grow, and you can devote more
financial resources to long-term goals, such as retirement. If you get married and have a
family, protecting your loved ones from unforeseen circumstances becomes critical. As
your income increases, it can be easy to fall into patterns of lifestyle inflation; working
with a financial professional can help you to identify your goals and stay on track as you
work toward them.
In this life stage, your goals should include:
▸ Availing life and health insurance.
▸ Reviewing your estate plan and preparing your will.
▸ Saving for your child’s college education.
▸ Starting your own business or building your career further.
▸ Growing your savings.
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 PRE-RETIREMENT
▸ As you enter your fifties and sixties, you might be in your peak earning years. However,
you might also be helping your kids pay for their educations or milestones, such as
weddings or first homes. Now is a critical time for retirement preparation; work with a
professional to evaluate your current situation.
Financial planning in this stage includes:
▸ Adjusting your plan to meet retirement goals
▸ Creating a sustainable withdrawal strategy for retirement
▸ Paying off mortgage and other expenses
▸ Maxing out all retirement contributions each year
▸ Minimizing tax burden
▸ Growing savings and other investments
▸ Changing your portfolio strategy if it’s too aggressive
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 EARLY-RETIREMENT
▸ Retirement is a brand-new journey unlike anything they’ve ever experienced. It’s the
first time in your life where you ditch the familiarity of a steady paycheck in exchange
for finite resources and never-ending free time. And it’s also a time to see if all your hard
work has paid off.

That’s why we focus on preservation during this financial planning stage by:
▸ Monitoring your withdrawal rate to ensure it doesn’t outpace portfolio performance
▸ Ensuring your portfolio is positioned for protection and growth
▸ Tracking your retirement budget and making necessary adjustments
▸ Managing your tax strategy
▸ Updating your will and estate as needed

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 LATE-RETIREMENT
▸ Your late retirement years are all about balancing health and wealth to ensure your
longevity matches your assets. By this time, you may have spent several years in
retirement doing all the things you love. Maybe you’ve hung out with the grandkids,
volunteered in your local community or even traveled a bit. The plan is that you’ll still be
able to do all these things.

That’s why financial planning in this stage consists of:

▸ Considering assisted living options within your long-term care plan
▸ Updating your will and estate plan as needed
▸ Ensuring your withdrawal rate is within a sustainable range
▸ Making sure you’re selling investments in a tax-efficient manner
▸ Managing healthcare costs
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THE BOTTOMLINE

“The only constant in life is change.”

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Thank you
for
listening!

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