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CIMA Operational level Management of working capital cash and sources of short term finance

CIMA Operational level Management of working capital cash and sources of short term finance

CIMA Operational level Management of working capital cash and sources of short term finance: The cash-conversion cycle (CCC) represents the period between a company’s payment of suppliers for raw materials and its payment by customers for finished goods. As a simple example, imagine that you’re a market trader who sells fruit. You make most of your sales in cash, but you may be lucky enough to supply a local restaurant, to which you offer 30 days’ credit. Your ideal situation would be to sell your inventory as quickly as possible, enabling you to use the cash to buy more fruit or invest in another stall. Your situation would be improved further if your fruit supplier were to offer you extended credit.

CIMA Operational level Management of working capital cash and sources of short term finance

Receivables days The figure for receivables days needs to be as low as possible to encourage an injection of cash into the company.

This can be achieved in the following ways:

– Introduce payment terms.

– Decrease current payment terms.

– Introduce a discount for early settlement.

– Introduce late-payment fees and/or interest charges.

– Improve the debt-chasing process.

– Outsource the process to a debt-factoring specialist.

If the company has attracted custom by operating either no payment terms or easy ones, introducing some or making existing terms tougher could deter this custom. Such measures could signal that the firm is short of cash, which could also put off suppliers and customers. This problem can be overcome by discussing potential payment terms with key suppliers and promoting improved working capital management.

Early-settlement discounts or interest charges could be introduced, but you need to take care when charging interest or applying late-payment fees, because such practices can alienate customers and have a negative effect on the company’s reputation and sales. It may be that the company’s credit-control department is ineffective at chasing debts. In such cases, the management team would need to re-evaluate the credit control process, highlight any problems and act to solve them. A performance measurement system linked with a reward package could be introduced in an effort to improve results in this area. But the costs versus the benefits of doing so would need to be considered carefully.

CIMA Operational level Management of working capital cash and sources of short term finance: Working Capital Cycle

Finally, the working capital cycle can be calculated now we have the above three ratios. To calculate it you need to do the following:

  •  Inventory Days + Receivable Days – Payable Days = Working Capital Cycle

CIMA Operational level Management of working capital cash and sources of short term finance: Conclusion

Using all of the information above, you can see the working capital cycle has improved from 51 days in 2014 to 47 days in 2015.

This is despite taking longer to collect receivables in 2015 (79 days from 62 days), it appears the positive impact of taking longer to pay suppliers (61 days from 45 days) and holding less inventory in stock (29 days from 34 days) has improved the working capital cycle to 47 days.

Which fundamentally means, in 2015, it took 47 days to turn raw materials into cash. Meanwhile, these ratios above highlight the fact that this can be further improved if better credit control procedures are put into place to reduce the accounts receivable days from 79.

CIMA Operational level Management of working capital cash and sources of short term finance: Details on CIMA Operational level Marketing: History and Services

Details on CIMA Operational level Marketing: The Chartered Institute of Management Accountants (CIMA) is a UK based professional body offering training and qualification in management accountancy and related subjects. It is focused on accountants working in industry, and provides ongoing support and training for members.

CIMA is one of the professional associations for accountants in the UK and Ireland. Its particular emphasis is on developing the management accounting profession. CIMA is the largest management accounting body in the world with more than 227,000 members and students in 179 countries. CIMA is also a member of the International Federation of Accountants.

CIMA operates a standard scheme of qualifying examinations for prospective members. It promotes local education, training and management development operations, and new techniques through its research foundation and the dissemination of management accounting practices through publications and other media related activities. CIMA has been active in recent educational and vocational initiatives in former Eastern bloc countries. It publishes a monthly journal, supplied free to members and registered students, called ‘Financial Management’.

CIMA is recognised as a professional accounting body for various statutory purposes by UK and various overseas governments. The institute regulates the activities of its members by a code of practice, a discipline committee and (a recent innovation) a continuing education scheme. Its governing body is its council, comprising members elected from regional branches. Each of the branches has a committee and is responsible for much of the ‘grass roots’ activity. Activity such as qualification development is undertaken from the London head office.

The CIMA Global Business Challenge, an annual international business and strategic management competition for undergraduates around the world, is designed to bring out the best in the young business leaders of tomorrow.

In July 2009, CIMA added an online community – CIMAsphere – to its website. The community consisted of a range of blogs, discussion boards, groups, community answers, expert Q&A sessions and some social networking features for members, students and the general public. This has since been shut down. Members are instead encouraged to join the CIMA LinkedIn group, and students are directed to CIMAconnect, an online study support portal.

In 2011, CIMA entered into a joint venture with the American Institute of Certified Public Accountants (AICPA) to launch a global management accounting designation called the Chartered Global Management Accountant (CGMA).In the Americas outside the U.S., non-U.S. CPAs can obtain the new designation as an AICPA International Associate, after a rigorous assessment process. In the rest of the world, new designation holders are able to become members of CIMA after the same assessment process.

CIMA is proactive to tie up with American CPA because of the current convergence trend between US-GAAP and IFRS, reinforced following the merger of the iconic New York Stock Exchange with Germany’s Deutsche Boerse AG. “It remains to be seen whether companies listed in a combined exchange would be required to report under IFRS, US GAAP or both, but as the US appears to be moving towards IFRS adoption it is more likely the international standards would be the accounting rules of choice”.

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CIMA Operational level Management of working capital cash and sources of short term finance – Complete details

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