Tuesday, December 31, 2019
Fines Needed for NFL Players Using Performance Enhancing...
The problem with the NFL not fining its players for PED use it makes the league seem soft. They only give the players a four game suspension which doesn’t help them learn anything for the use of PEDs. The players in the NFL now get away without being caught because they are looking for other drugs too, and the players that are caught is very few because of all the other tests going on. This is relevant today because it affects everyone in the US that watches the sport and makes them want to stop watching it, when the people stop watching the NFL loses money from that, so intern everyone loses out on the players using steroids. With the use of PEDs spreading throughout the NFL it seems like a good idea to start teaching all the rookies early about how fast the use of steroids can to do a players career after some time. With the NFL getting new players every year, some of them seem to pick up on veteran players habits for instance they use steroids to make themselves bigger and better like the older players they look up to. With the younger players seeing the older players as role models they make them pay for the drugs they used while playing, to make an example of how wrong it is in the NFL to get caught with a positive steroid test, and have more than just a four game suspension. Having a higher penalty for using PEDs will hopefully make some of the newer players scared to go anywhere near a drug that improves their performance. They should start making rookies andShow MoreRelatedEssay on Drug Abuse in the NFL2195 Words  | 9 PagesDrug Abuse in the NFL Its nothing new for the National Football Leagues players to be abusing anabolic steroids and other performance enhancing drugs. Drug abuse in the league has recently focused around recreational drugs such as marijuana, cocaine, and alcohol. The newest drug being abused is painkillers. The commissioner and his personal need to change their policies. Will they wait until many more players start to die before they tighten up their drug policies? The National FootballRead MorePED in Sports Essay1644 Words  | 7 Pages PED in Sports Performance enhancing drugs have been a longstanding problem in sports. It not only deteriorates the honesty of the game, but also can have broader social affects that one may not even realize. The use of performance enhancing drugs is especially apparent in Major League Baseball. This problem can be traced back to the 1980’s when baseball was facing one of its first â€Å"dark periods†. During the 1980’s Major League Baseball was experiencing a home run drought. Home run totals wereRead MoreHenry David Thoreau And Ralph Waldo Emerson1992 Words  | 8 PagesHenry David Thoreau and Ralph Waldo Emerson, a group of transcendentalists who brought great ideals with them through the mid 1800’s. Their philosophy stated that people needed to stay true to themselves and their own ideas, not those of society. One essay where Thoreau thoroughly exemplifies this is in Civil Disobedience. Throughout this essay, Thoreau tries to show his point that even though the government consists of more people, it will not always be correct. This means that the majority doesRead MoreStephen P. Robbins Timothy A. Judge (2011) Organizational Behaviour 15th Edition New Jersey: Prentice Hall393164 Words  | 1573 PagesValues to the Workplace 148 Person–Job Fit 148 †¢ Person–Organization Fit 150 International Values 150 Summary and Implications for Managers 154 S A L Self-Assessment Library Am I a Narcissist? 132 Myth or Science? Personality Predicts the Performance of Entrepreneurs 142 glOBalization! The Right Personality for a Global Workplace 143 An Ethical Choice Should You Try to Change Someone’s Personality? 147 Point/Counterpoint Millennials Are More Narcissistic 155 Questions for Review 156 ExperientialRead MoreMarketing Mistakes and Successes175322 Words  | 702 Pagesseven new cases to replace seven that were deleted from the previous edition. Some of the cases are so current we continued updating until the manuscript left for the production process. We have tried to keep all cases as current as possible by using Postscripts, Later Developments, and Updates. A number of you have asked that I identify which cases would be appropriate for the traditional coverage of topics as organized in typical marketing texts. With most cases it is not possible to trulyRead MoreProject Mgmt296381 Words  | 1186 PagesOrganization structure [9.1.3] 9.1.1 Organization charts 1.4.4 Project offices Chapter 4 9.2 Building the team (.1.3) [3.5.3] [App G.2 Building teams] 9.4 Managing the team 9.3.2 Team building activities 9.2.4 Virtual teams 9.3.3.1 Team performance [9.4.2.2] 9.4.2.3 Conflict management 9.3.2.6 Recognition and awards Defining the Project 4.1 Project charter 5.1 Gather requirements 5.2 Defining scope 5.3 Creating a WBS 5.4 Tools and techniques 6.1 Define activities 9.1.2. ResponsibilityRead MoreMonsanto: Better Living Through Genetic Engineering96204 Words  | 385 Pages if you are in a rivalrous industry which has good growth prospects because of useful demographic change and you have good ï ¬ nancial resources, you may argue for expansion into the new segment using available resources. If the ï ¬ nances were not there, this strategy would be difï ¬ cult to support. USING THE COCHLEARâ„ ¢ CASE AS A TRAINING CASE This case analysis process is easy to use once you have learned it, and the best way to learn is to try it out. The Cochlearâ„ ¢ case in this book is designedRead MoreChemical Hazards43022 Words  | 173 Pagesidentified in various aspects of the management of chemical accidents, transport accidents and medical emergencies. The management of chemical disasters will aim at prevention and mitigation with the introduction of safer process technologies, improved performance of safety devices and reduction of human error. Immediate effects of a disaster can be mitigated through installing engineering systems like scrubbers, flares and venting systems. The various work areas and activities that can be undertaken within
Monday, December 23, 2019
What is a Friend Essay - 619 Words
What is a friend? A friend is someone who supports you, sympathizes with you, or patronizes a group. An easily definition of that would be a person you know, like and trust. In these tough times we count on friend to help us get through. I like to think of friendship as everlasting, but is friendship truly forever? Can miles drive you away from friends you made after graduating from places like high school or college? Just imagine walking across the stage and never seeing the people you graduated with. Well for those instances you can always join networking places like Facebook. Facebook helps you connect with the people in your life. In those ways you would never be without your friends. On these sites you can write to each other on†¦show more content†¦A friendship can be everlasting depending on the personalities in that relationship. Sometimes personalities can change for the good the bad in many friendships. You can never change a person through a friendship. Differences can set you apart. The definition of a friend has changed over the years therefore that could be a contributing factor to why we can count our friend on one hand. Think ab out it! When separating from friends for a while physically values and beliefs start to change. Many may argue that is not true, but I will say I have lost many friends do to personality changes and belief. Some reasons maybe be because everyone in college likes to smoke and drink. I am not a fan of either which I believe is gross so I drop many friends due to that reason. I have also lost a lot of friends due to the ways they act towards me or others when different people are around. In the urban world we call that being â€Å"fake.†Fake is another way of saying you aren’t what you claim to be. You don’t stay true to yourself and totally honest. On the other side people can change for the good to help each other in a friendship. Friendships can gain trust through one another in due to the people you are around. In a relationship trust is being able tell a secret under confidence to other people hoping they wont tell. If you gain some ones trust when you come to a problem you are likely to come to that personShow MoreRelatedWhat Makes A Friend?1028 Words  | 5 Pagesto either heal or destroy our perspectives, future relationships, and self-esteem. Because friendships appear to rest natural, â€Å"we don’t often explicate our expectations about what it means to be a friend, but most of us nevertheless have rules for relationships that are shared cultural beliefs about what behaviors friends should perform†(Miller, 2012, p. 220). Through ensuing an innate governance of expectations, friendships subsist informal and effortless, until an individual breaks expectancyRead MoreWhat Makes A Good Friend?962 Words  | 4 Pageson. There are mean, ignorant people in this world that can say things to make people feel bad about them self. I am lucky to have friends that support and make me happy when I have a bad day. All people deserve to have one at least one person to count on to be there for them. People that are supportive, dependable and caring are the definition of a good friend. Friends that support one another impact each other’s lives with helping them through good and bad times. Support is a big key to a friendshipRead MoreAnalysis Of The Book Is What Is A True Friend 933 Words  | 4 Pagestitle is What Is a True Friend. The author’s name is Elaine S. Dalton. The article belongs to Youth. It tells us we should focus on being a friend rather than having friends. The definition of a friend has changed in today’s technologically connected the world and there are many definitions of what means to be a friend. However, which definition that the author can not agree more with is that Elder Robert D. Hales speak about what it means to be a friend and the powerful influence of friends in ourRead MoreWhat Makes A Friend s Opinion?1410 Words  | 6 Pages The friends a person has can help mold that person into who they are today. Choosing who to be around can sometimes be hard. Nobody is perfect, so being hypercritical is not something to be when choosing your friends. Although, some people can we wonderful, lifelong friends, and some can be a wolf in sheep’s clothing. Being cautious is important when choosing friends because they could change you, and not for the better. A friend’s opinion can affect the views one has about who they are, andRead MoreWhat Would You Do If A Friend?1250 Words  | 5 PagesWhat would you do if a friend asked you to forsake your values? Recently, a friend of mine, Cheryl, did just that by presenting me with an ethical dilemma, requesting me to lie and support her abortion decision. We had been friends for years; in fact I introduced her to her boyfriend Mike, also a friend of mine. She and I had previously bonded over our shared beliefs that life begins at conception. My friend Chery l has just found out that she is pregnant. I understand she is scared because she andRead More Friendship Essay: What Makes A Good Friend?965 Words  | 4 PagesA friend is someone difficult to find. A friend is someone you can always count on when times are tough. The dictionarys definition of a good friend is a person attached to another by feelings of affection or personal regard. A good friend is there when you are struggling. For example, when a boy breaks your heart a good friend walks you through it and offers a shoulder to cry on. According to Bree Neff, a good friend is someone who is trustworthy, doesnt talk behind your back, listens to yourRead MoreWhat Should Be Called A True Best Friend?844 Words  | 4 Pagessame if friends didn’t exist. Since one could not ever know when a friend will come by and remove that loneliness that have been longed in the hearts. That is what should be called a true â€Å"best friend.†Those are people who continue to be loyal no matter what happens, unless it’s serious, dead serious. Although those type of friends aren’t the only type of friends one could have. There are also true friends, normal friends and frenemies(a friend that became an enemy). Worst type of friend that couldRead MoreWhat Makes A Good Friend Alex Lickerman Explains The781 Words  | 4 PagesWhat Makes a Good Friend Alex Lickerman explains the qualities that he considers ideal in a true friend. He references kenzoku, a Japanese term for having a sacred bond with someone that is not blood related. In order to have this sacred bond there are certain traits that must be present. Two individuals must be drawn together commonly by similar interests. Nevertheless, if they have a history together due to shared experiences they will often tie two entities together. Common values are anotherRead MoreWhat Point Of The Friendship Can I Call A Person As A Friend?1295 Words  | 6 PagesOn what point in the friendship can I call a person as a friend? Human friendship is something I will never understand. Even I open my dictionary it only says, â€Å"Friendship (noun) 1. The emotions or conduct of friends; the state of being friends.†â€Å"Friends†as mean fully understand and accepts each other’s feelings, characters, habits, etc. That will be impossible. Because there will be a day, when you’ll see a friend right next to you, then in the following day, they are the farthest person you’llRead MoreWhat I Learned With My Mom And My Friend Casey877 Words  | 4 Pages a) describe what they remember I spoke to my Mom and my friend Casey. My mom was three miles away in Manhattan when the first impact happened. It shook her entire office, on the 78th floor. She immediately called my dad and got out of the city; took a cab and paid the driver to go straight to Connecticut. She remembered watching the TV, shocked about what had happened. There was rage, anger, and disbelief. She didn’t know what could posses someone to act in that manner. My friend Casey was living
Saturday, December 14, 2019
Managing Working Capital Free Essays
string(28) " of credit analysis are: 1\." MANAGING WORKING CAPITAL Cash Budgets and Current Assets Learning Objectives Upon reading this chapter, students should: †¢Ã‚       Be able to compare and contrast working and fixed capital †¢Ã‚       Understand the impact of the operating cycle on the size of investment in accounts receivable and inventories †¢Ã‚       Know the differences between the three motives †¢Ã‚       Be able to differentiate between float, collection float, and disbursement float †¢Ã‚       Know how to appraise a firm’s credit worthiness †¢Ã‚       Be able to appraise the effectiveness of a firm’s inventory management policies Chapter Summary A firm can invest in both working capital and fixed capital. Working capital is a firm’s current assets and includes cash, marketable securities, inventory, and accounts receivable. Fixed capital is a firm’s fixed assets and includes plant, equipment and property. We will write a custom essay sample on Managing Working Capital or any similar topic only for you Order Now Firms that cannot obtain short-term financing become candidates for bankruptcy. Management of working capital is particularly important to the entrepreneurial or venture firm because there is such a pull on resources. Two important concepts in managing working capital are the operating cycle and the cash conversion cycle: †¢Ã‚       The operating cycle measures the time between receiving raw materials and collecting the cash from credit sales posted to accounts receivable †¢Ã‚       The cash conversion cycle measures the time it takes to collect money from the company’s customers and use those funds to pay its suppliers Calculating three ratios will reveal the average length of these cycles: 1. Inventory days            = 365 / (Cost of goods sold / Inventories) 2. Accounts receivable period (average collection period) = Accounts receivable / (Net sales / 365) 3. Average payment period = Accounts payable / (Cost of goods sold / 365) The operating cycle is the inventory conversion period plus the average collection period. The cash conversion cycle is the operating cycle minus the average payment period. In order to determine average investment in accounts receivable, multiply net sales per day by the average collection period. With this number, a manager can now estimate what the investment in accounts receivable will be fore ht following year given sales increases and average collection period. In order to determine investment required in inventories, multiply average cost of goods sold per day by inventory conversion period. The required amount of accounts payable can be found by multiplying the cost of goods sold per day by average payment period. Armed with these numbers, a manager can tweak the business practices and use these numbers as metrics for improvement. If savings can be wrung out of the operating cycle and conversion cycle, this means less money will have to be raised in financing. A cash budget details the cash inflows and outflows of a firm over a specific time frame. Small firms may prepare annual or monthly cash budgets while larger firms will forecast cash flows weekly or daily. Most firms have a minimum desired cash balance that depends on the firm’s ability to acquire financing on short notice, management preferences, and the predictability of cash inflows and outflows. Estimates of cash inflows are driven by two main factors: 1. Sales forecast (may exhibit seasonality) 2. Customer payment patterns Cash outflows will go to suppliers, payroll, taxes, operating expenses, and purchases of plant and equipment. In order to construct the cash budget, list all expected cash inflows and then all expected cash outflows for the particular period, generating a net cash flow amount. As a general rule of thumb, the average firm has 1/3 or more of its assets in the form of current assets (cash, accounts receivable and inventory). Seasonal production and forecasting can lead to idle plant capacity and laid-off workers during the off-season. Under a level production plan, the same amount of raw material is purchased and the same amount of finished product is manufactured every month. There are three types of motives for holding cash: 1. The transactions motives are demands for holding cash – cash is needed to conduct day-to-day operations 2. Precautionary motives are demands that may be caused by unpredictable events, such as delays in production or in the collection of receivables; marketable securities are held in such a contingency 3. Speculative motives are demands for funds to take advantage of unusual cash discounts for needed materials Cash and marketable securities include: †¢Ã‚       Cash itself †¢Ã‚       U. S. Treasury bills        Commercial paper – short-term, unsecured notes of well-known business firms †¢Ã‚       Negotiable certificates of deposit – a receipt issued by a bank in exchange for a deposit of funds †¢Ã‚       Bankers’ acceptances – primarily used to finance exports and imports †¢Ã‚       Eurodollars – deposits placed in foreign banks that remain denominated in U. S. dollars There are several reasons why U. S. banks have entered the Eurodollar market through overseas branches: 1. To finance business activity abroad 2. To switch Eurodollars into other currencies 3. To lend to other Eurodollar banks In general, managers try to speed up cash collections while slowing down the payment process. The float is the time between sending out payments and having them actually be charged to the bank account. The collection float is the time between when a payer sends payment and funds are credited to the payee’s bank account. The disbursement float is the time between when a payer sends payment and when the funds are deducted from the payer’s bank account. Float has three components: 1. Delivery or transmission float – the delay in transferring the means of payment from the payer (customer) to the payee (provider of goods/services) 2. Processing float – once payment reaches the destination, it needs to be entered and processed 3. Clearing float – delay in transferring funds because of the banking system itself In order to speed up the process: †¢Ã‚       Preauthorized checks are regular (typically monthly) deductions by a vendor from a customer’s checking account. †¢Ã‚       Under the Check 21 law, enacted in 2004, payee banks can present electronic or digital images of checks to payer banks rather than having to physically deliver the paper checks for payment. In order to facilitate sales, firms often offer the customers credit for purchases; this process calls in credit analysis. The five Cs of credit analysis are: 1. You read "Managing Working Capital" in category "Essay examples" Character – ethical quality of the applicant and the history of paying bills on time (credit checks) 2. Capacity – the ability to pay bills (liquidity ratios) 3. Capital – adequacy of owners’ equity relative to existing liabilities 4. Collateral – whether assets are available to provide security 5. Conditions – current economic climate and state of the business cycle Credit bureaus obtain credit information about business firms and individuals; two such organizations are Experian and Equifax. Dun Bradstreet reports contain information assembled through many channels and is one of the best sources of information on privately-held companies; reports are typically divided into five sections: (1) rating and summary; (2) trade payments; (3) financial information; (4) operation and location; and (5) history. Trade credit is extended on purchases to a firm’s customers. Sometimes, customers are given a discount if they pay early. The financial manager must be careful not to impose onerous credit terms that will alienate customers and lower sales. With respect to global credit, the concern is forex. There are two ways to handle the issue: 1. Invoice customers in the firm’s home currency 2. Hedge the forex risk Inventory management: †¢Ã‚       The just-in-time (JIT) inventory control system is a system where there are enough materials in inventory to cover needs for a short time, but not more inventory than is needed for short-term needs. Vendor and manufacturer work together to reduce lead time, setup time, and production time so that inventory shows up â€Å"just in time† †¢Ã‚       JIT II further integrates the activity of vendor and purchaser, wherein the position of buyer’s purchasers or materials planners is eliminated and replaced by a representative of the supplier †¢Ã‚       Tracking inventory also allows firms to reduce the inventory conversion period and the cash conversion cycle. RFID (radio frequency identification) tags send out a radio signal to electronic readers that allow companies to know the location of inventory at any time Inventory management can result in reduced cost of warehousing and handling inventory. Cost savings and smaller asset bases should lead to higher return on assets and increasing shareholder wealth. Technology is improving asset management by making information available with which managers make business decisions in a real-time setting. Technology may be the key to reducing procurement and supply chain costs. Portals are specialized and secure Web sites through which clients can access order and account information. Key Terms Capacity                                The ability to pay bills and often involves an examination of liquidity ratios. Capital                                   The adequacy of owners’ equity relative to existing liabilities as the underlying support for creditworthiness. Cash budget                          The cash inflows and cash outflows of a firm over a specific time frame. Cash conversion cycle          The time it takes to collect money from the company’s customers and use those funds to pay its suppliers. Character                              The ethical quality of the applicant and his/her willingness to pay bills on time and is best judged by reviewing the past credit history for the company or person. Collateral                               Assets that secure credit. Collection float                      The time between when a payer sends payment and the            funds are credited to the payee’s bank account. Conditions                             The current economic climate and state of the business cycle. They are an important consideration in assessing whether the applicant can meet credit obligations. Credit bureaus                      Firms that obtain credit information about         business firms and individuals. Disbursement float               The time between when a payer sends payment and when the funds are deducted from the payer’s bank account. Fixed capital                          A firm’s fixed assets, which include plant, equipment, and property. Float                                       The time between sending out payments and having them actually be charged to the bank account. Level production plan           Schedule where the same amount of raw material is purchased and the same amount of finished product is manufactured every month. Operating cycle                     The time between receiving raw materials and collecting the cash from credit sales posted to accounts receivables. Portals                                   Specialized and secure web sites through which clients can access order and account information. Pre-authorized checks          Regular (typically monthly) deductions by a vendor from a customer’s checking account. Precautionary motives          Demands for funds that may be caused by unpredictable events, such as delays in production or in the collection of receivables. Speculative motives              Demands for funds to take advantage of unusual cash discounts for needed materials. Trade credit                           Credit that is extended on purchases to a firm’s customers. Transactions motives            Demands for holding cash is that cash is needed to conduct day-to-day operations. Working capital                     A firm’s current assets as shown on the balance sheet and includes cash in the bank accounts, marketable securities, inventory, and accounts receivable. Suggestions for Additional Resources 1. http://en. wikipedia. org/wiki/Just_In_Time_%28business%29 2. http://www. lean. org/ 3. http://www. equifax. com/ 4. http://www. experian. com/ 5. http://www. investopedia. com/terms/c/creditbureau. asp 6. http://en. wikipedia. org/wiki/Credit_bureau 7. http://www. investopedia. com/terms/w/workingcapital. asp 8. http://en. wikipedia. org/wiki/Working_capital Answers to Summary Questions 2. Fixed capital would be defined as the firm’s fixed assets, which include plant, equipment and property. True or false? True. . 3. The operating cycle measures the time it takes between ordering materials and collecting cash from receivables. True or false? True. . 4. If a firm has $50,000 in profit and pays out about one half to the owners of the company, the amount of profit retained in the firm would show up as: (a) an increase in owners’ equity (b) a decrease in owners’ equity (c) a decrease in retained earnings (d) a decrease in long-term debt . 5. The accounts payable period is the time between a firm’s paying its suppliers for inventory and collecting cash from inventories. True or false? False. . 6. Increases in the cash conversion cycle will lower the firm’s short-term financing needs. True or false? False. . 7. The inventory conversion period is calculated by inventory divided by costs of goods sold. True or false? False. . 8. Activities that decrease the cash conversion cycle will increase the firm’s need to obtain financing. True or false? False. . 9. More efficient management of working capital assets will lessen the firm’s needs for financing. True or false? True. . 10. A cash budget is a tool the treasurer uses to forecast future cash flows and estimate future short-term borrowing needs. True or false? True. . 11. To construct a cash budget, two sets of information are needed: estimated cash inflows and estimated cash outflows. True or false? True. . 12. The estimated cash inflows are affected by the sales forecast and customer payment patterns. True or false? True. . 13. Assume a firm’s production process requires an average of 80 days to go from raw materials to finished products and another 40 days before the finished goods are sold. If the accounts receivable cycle is 70 days and the accounts payable cycle is 80 days, what would the short-term operating cycle be? (a) 110 days (b) 130 days (c) 190 days (d) 270 days . 14. If a firm has net sales of $400,000, annual cost of goods sold of $315,000, an inventory turnover of 4. 5 times a year, and an accounts receivable turnover of five times a year, the combined investment in inventories and accounts receivable would be: (a) $64,500 (b) $92,000 (c) $122,500 (d) $150,000 . 15. Calculation of a firm’s average collection period is the same as calculating the: (a) accounts receivable cycle (b) inventory cycle c) accounts payable cycle (d) short-term operating cycle . 17. A level production plan has problems, such as idle plant and laid-off workers during slow sales months and production bottlenecks during busy times. True or false? False. . 18. The account receivable period may be calculated as accounts receivable divided by sales. True or false? False. . 19. The account receivable period may be calculated as accounts receivable divided by daily sales. True or false? True. . 20. The transactions motive is the demand for holding cash. True or false? True. . 22. The federal funds rate is normally several points lower than the Treasury Bill rate. True or false? False. . 23. The five C’s of credit analysis is a popular concept used by inventory managers. True or false? False. . 24. A mercantile credit bureau serves primarily as a (n): (a) collection agency for delinquent accounts (b) common meeting place where credit managers may exchange information (c) organization through which accounts receivable may be sold to other businesses (d) central record-keeping organization for credit information on business firms . 25. The objective of just-in-time (JIT) inventory control is to carry a minimum level of inventories. True or false? True. . 26. The delivery or transmission float is the delay in transferring the means of payment from the payer (customer) to the payee (the provider of goods or services). True or false? True. . 27. The disbursement float is the delay in transferring the means of payment from the payer (customer) to the payee (the provider of goods or services). True or false? False. Answers to â€Å"Review Questions†. 1. What is meant by working capital? Net working capital is defined as current assets minus current liabilities. . 2. Briefly describe a manufacturing firm’s operating cycle. The operating cycle measures the time between receiving materials and collecting cash from receivables. Raw materials are purchased and products are manufactured from them to become finished goods. Effort then is made to sell the finished goods. If the goods are sold on credit, then the receivables must be collected. . 3. Explain how the cash conversion cycle differs from the operating cycle. The cash conversion cycle typically is shorter than the operating cycle. The cash conversion cycle measures the time between when a firm pays for its supplies or raw materials and when it collects cash from receivables.  4. Describe how the length of the cash conversion cycle is determined. It is equal to the operating cycle (inventory period minus the accounts receivable period) minus the payables period. . 5. Explain how the length of the operating cycle affects the amount of funds invested in accounts receivable and inventories. All else being equal, a longer (shorter) inventory p eriod and receivables period will increase (decrease) the amount of inventory and accounts receivable carried by the firm. . 6. What affects the amount of financing provided by accounts payable as viewed in terms of the cash conversion cycle? The level of the firm’s cost of goods sold and the average payment period affect the amount of financing provided by accounts payable. . 7. What is a cash budget? How does the treasurer use forecasts of cash surpluses and cash deficits? A cash budget lists, period by period, expected cash inflows and outflows. The treasurer can plan ahead to find suitable marketable securities in which to invest excess cash. If cash deficits are forecast, the treasurer can arrange for short-term financing sources. . 8. Three sets of information are needed to construct a cash budget. Explain what they are. The firm’s minimum desired cash balance, forecasted cash inflows, and forecasted cash outflows are needed to construct a cash budget. . 9. Why might firms want to maintain minimum desired cash balances? Firms want to maintain minimum desired cash balance to ensure they can pay bills on time (transactions motive) and to have a cushion, as forecasts of cash flows may differ from actual future cash flows. . 10. What are the sources of cash inflows to a firm over any time frame? The main sources of cash inflows are cash sales and customer payments on credit sales. . 11. What are the sources of cash outflows from a firm over any time frame? The main sources of cash outflows are payments for raw materials, labor and overhead expenses, rent/lease payments, plant and equipment purchases, interest and principal payments, dividend payments, and taxes. . 12. How does the choice of level or seasonal production affect a firm’s cash over the course of a year? Under level production, inventory becomes large before the peak selling season; whatever cash the firm has will probably be borrowed funds as cash is used to pay workers and suppliers over the course of the year as inventories are building. Under seasonal production, there is still a build-up of inventories prior to the selling season but probably less than under level production, as inventory can be sold shortly after it is made. Cash is conserved for much of the year; materials and labor expenses are less during the off-peak times when production is low. . 13. Describe what happens to a firm’s current asset accounts if the firm has seasonal sales and they use (a) level production; (b) seasonal production. a. Under a level production plan, the same amount of raw materials are purchased and the same amount of finished product is manufactured every month. Inventory builds up in anticipation of higher seasonal sales while cash and accounts receivable are quite low. When the selling season begins, inventories fall and receivables rise. After a time, inventories are nearly exhausted, and the firm is collecting cash from its customers. The changing composition of current assets for a firm with a seasonal sales pattern is illustrated in Figure 15. 4. b. Under seasonal production, raw material purchases will rise or fall in anticipation of higher or lower sales. Such a strategy can help minimize the effect of seasonal sales on inventory; goods are manufactured shortly before sale. Receivables will rise during the peak selling season but will fall thereafter as cash is collected. . 14. Describe the three motives or reasons for holding cash. a. need for day-to-day bill-paying? Transactions motive: b. hold funds to meet unexpected needsâ€â€a safety level of? Precautionary motive: cash hold funds? c. Speculative motive: to take advantage of attractive input prices or discounts 15. What characteristics should an investment have to qualify as an acceptable marketable security? Marketable securities must be highly liquid (easily converted into cash at a price close to fair market value) with little chance of price risk or default risk. . 16. Identify and briefly describe several financial instruments used as marketable securities. Marketable securities that can be used as a means to â€Å"park†the firm’s excess cash include a. short-term securities issued and backed by the U. S.? U. S. Treasury Bills: government b. a bank’s temporary excess reserves that are lent to other banks? Federal Funds: on a day-to-day basis c. short-term unsecured notes of large financially stable? Commercial Paper: firms . large dollar CDs ($100,000 or more) for? Negotiable Certificates of Deposit: which a secondary market has evolved e. business paper used to finance international trade, backed? Bankers’ Acceptances: (accepted) by a bank with a high quality rating f. deposits placed in foreign banks that remain denominated in U. S.? Eurodollars: dollar s (so there is no currency risk) . 17. What is float? Why is it important to cash management? Float is the delay between when funds are sent by a payer to a payee. Collection float is the time between when a payer sends payment and the funds are credited to the payee’s bank account. Disbursement float is the time lag between when a payer sends payment and when the funds are deducted from the payer’s bank account. It is important to cash management as the firm will have larger cash balances to invest and to reduce its own financing needs, all else being equal, the shorter the collection float and the larger the disbursement float. . 18. What are the three components of float? Which are under the control of the firm seeking to reduce collection float? The three components of float are delivery (or transmission) float, processing float, and clearing float. Delivery float and processing float are most directly under the control of the firm. Clearing float is controlled mainly by the banking system’s check-clearing process but the firm can try to reduce it (and delivery float) by using lockboxes that are geographically closer to customers then the firm’s main office. . 19. What are some strategies a firm can use to speed up its collections by reducing float? Using a lockbox, incoming receipts are placed in a Post Office box which can be emptied several times a day by bank personnel, who process the payments and deposit the incoming funds into the firm’s accounts. This reduces mail delivery delay and processing delay, as the bank processes the payments rather than the firm. A second popular method, best used for regular payments such as utility, cable bills, or insurance premiums, is the use of preauthorized checks that allow the firm to deduct funds from the payer’s bank account. . 20 How can processing float be reduced? Vendors reduce processing float by improving the process of receiving payments and depositing them. Large incoming payments (say, over $1 million) are automatically flagged and deposited expeditiously. Electronic check images and electronic payments (rather than the use of paper checks) remove the human component and thus can reduce processing delays. Lockboxes and preauthorized checks reduce processing delays, as processing is handled by banks, speeding deposit of incoming receipts. .. 21. How can a firm use float to slow down its disbursements? A firm can increase mail float by mailing payments from out-of-the-way locations, but that may hurt its reputation with suppliers who can direct the firm to send payments to another, closer, lockbox location. Another means are to use disbursement banks that are located around the country to increase disbursement float via the check-clearing process. So excess (and noninterest bearing) funds are not kept in a disbursement account, a firm can arrange to use a zero balance account for its disbursements. A bank will transfer sufficient funds every day into the ZBA to cover the day’s presented checks; other funds can remain invested in marketable securities. . 22. Why can’t a firm that wants to increase disbursement float simply make payments after the stated due date? There is an ethical issue with paying invoices late. If a vendor has provided needed goods and services the customer should pay for them in a timely and appropriate manner. Paying late can lead to negative notations on credit reports. Credit availability to late payers can be discontinued if the vendor’s credit standards are tightened. . 23. What is credit analysis? Identify the five C’s of credit analysis. Credit analysis involves appraising the creditworthiness or quality of a potential credit customer. Credit analysis includes examining the 5 C’s of credit. a. illingness to repay debts? Character: b. ability to repay debts (liquidity)? Capacity: c. equity cushion? Capital: d. what assets can provide security for the credit? Collateral: e. the state of the business cycle and its expected movement during the? Conditions: credit period . 24. Describe various credit-reporting agencies that provide information on business credit applicants. Credit bureaus provide f irms with information about a firm’s financial condition and its record on paying its past debts. Local credit bureaus service community credit information needs. The National Credit Interchange System facilitates exchange of information between bureaus. The National Association of Credit Management established the Foreign Credit Interchange Bureau to service firms with overseas customers. Dun Bradstreet is perhaps the best-known private firm supplying credit information. . 25. How can a firm control the risk of changing exchange rates when billing an overseas customer? First, a firm can invoice the overseas customer in the firm’s home currency; this transfers the risk of changing exchange rates to the customer. Second, if the customer may pay in their own currency, the supplier can use currency futures or options contracts to hedge or reduce the risk of changing exchange rates. . 26. What risks arise when a firm lowers its credit standards to try to increase sales volume? Marginal and poor-risk customers may purchase the firm’s goods/services on credit. If they are unable to make payment, the firm must revise its sales figures and faces the added expense of trying to recover the goods and whatever funds it can from the delinquent customer. . 27. How do credit terms and collection efforts affect the investment in accounts receivable? All else being equal, lax credit terms increase the investment in accounts receivable and increase the chance for larger bad debts. Stricter credit terms will likely reduce receivables balances, but at the cost of possibly losing sales to competitors with easier standards. Collection efforts are aimed at having customers with overdue accounts pay their bills. Thus, successful collection efforts can reduce receivable balances and bad debt expense. On the other hand, collection efforts that offend customers can lead to lost future business. 28. How is the financial manager involved in the management of inventories? Inventory management concerns the financial manager because inventory, like all other assets, must be financed. Overly large inventories use warehouse space and have larger financing costs and insurance costs. Smaller inventories run the risk of selling out and causing customer dissatisfaction. Answers to â€Å"Applying this Chapter†Questions 2. The Robinson Company has the following current assets and current liabilities for these two years: 2004            2005 Cash and marketable securities |$50,000 |$50,000 | |Accounts receivable |300,000 |350,000 | |Inventories |350,000 |500,000 | |Total current assets |$700,000 |$900,000 | |Accounts payable |$200,000 |$250,000 | |Bank loan |0 |150,000 | |Accruals |150,000 |200,000 | |Total current liabilities |$350,000 |$600,000 | | | | | If sales in 2004 were $1. 2 million and sales in 2005 were $1. 3 million, and cost of goods sold was 70 percent of sales, how long were Robinson’s operating cycles and cash conversion cycles in each of these years? What caused them to change during this time? AR period = $350,000/($1,300,000/365) = 98. 27 days (2005)                  = $300,000/($1,200,000/365) = 91. 25 days (2004) Inventory period           = $500,000/($910,000/365) = 200. 55 days (2005)                            = $350,000/($840,000/365) = 152. 08 days (2004) AP period = $250,000/($910,000/365 ) = 100. 27 days (2005)                  = $200,000/($840,000/365) = 86. 90 days (2004) Operating cycle = AR period + Inventory period = 98. 27 + 200. 55 = 298. 82 days (2005)                           = 91. 25 + 152. 08 = 243. 33 days (2004) Cash conversion cycle = Operating cycle – AP period = 298. 82 – 100. 27 = 198. 5 days (2005)                                      = 243. 33 – 86. 90 = 156. 43 days (2004) Both the OC and CCC rose in 2005, primarily because of a large rise (almost 48 days) in the inventory period. 5. The Robinson Company from Problem 2 had net sales of $1,200,000 in 2004 and $1,300,000 in 2005. (a)      Determine the receivables turnover in each year. AR turnover      = Sales/AR = $1,300,000/$350,000 = 3. 71 (2005)                            = $1,200,000/$300,000 = 4. 00 (2004) (b)      Calculate the average collection period for each year. Average collection period       = AR/(Sales/365) Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â à ‚         = $350,000/($1,300,000/365) = 98. 7 days (2005)                                                  = $300,000/($1,200,000/365) = 91. 25 days (2004) (c)      Based on the receivables turnover for 2004, estimate the investment in receivables if net sales were $1,300,000 in 2005. How much of a change in the 2005 receivables occurred? Receivables investment     = Sales per day ? Average collection period                                              = ($1,300,000/365) ? 91. 25 days = $325,000 6. Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2004 and $1,200,000 in 2005. (a)      Calculate the invent ory turnover for each year. Comment on your findings. Inventory turnover      = COGS/Inventory = $1,200,000/$500,000 = 2. 40 (2005)                                      = $1,000,000/$350,000 = 2. 86 (2004) Inventory turnover fell in 2005; inventory rose more quickly than cost of goods sold. (b)      What would have been the amount of inventories in 2005 if the 2004 turnover ratio had been maintained? Inventories investment     = COGS per day ? Inventory period                                            = $1,200,000/365 ? (365/2. 86) = $419,580. 42 7. Given Robinson’s 2004 and 2005 financial information presented in problems 2 and 4,     (a)      Compute its operating and cash conversion cycle in each year. R obinson Company | | | | | | |2004 | |2005 | | |Sales |$1,200,000 | |$1,300,000 | | |Cost of Goods sold |$1,000,000 | |$1,200,000 | | |profit margin |5. 0% | |5. 0% | | | | | | | | |Accounts Receivable |$300,000 | |$350,000 | | |Inventory |$350,000 | $500,000 | | |Accounts Payable |$200,000 | |$250,000 | | | | | | | | |Sales/ day = |$3,287. 67 | |$3,561. 64 |= $1,300,000/365 | |COGS/day= |$2,739. 73 | |$3,287. 67 |= $1,200,000/366 | | | | | | | |Inventory conversion period = Inventory/COGS per day | | |127. 75 |days |152. 8 |days | | | | | | | |Average collection period = AR/sales per day | | | |91. 25 |days |98. 27 |days | | | | | | | |Average payment period = AP/COGS per day | | | |73. 0 |days |76. 4 |days | | | | | | | |Operating cycle = Inventory conversion + co llection periods | | |219. 00 |days |250. 35 |days | | | | | | | |Cash cycle = Inventory conversion + collection period – payment period | | |146. 00 |days |174. 31 |days | (b)      What was Robinson’s net investment in working capital each year? |Net investment in working capital = AR + Inventory – AP (as used in his chapter) | | |2004 | |2005 | | | |=$300,000+$350,000-$200,000 |=$350,000+$500,000-$250,000 | | |=$450,000 | |=$600,000 | | 8. Robinson expects its 2006 sales and cost of goods sold to grow by 5 percent over their 2005 levels. (a)      What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2005 levels? What will be its net investment in working capital? If the ratios remain the same, a | | | |5 |percent increase in sales and COGS will increase AR, | |inventory , and AP proportionately in 2006 | | | |AR: $350,000 + 5%= |$367,500 | | | |Inv: $500,000 + 5%= |$525,000 | | | |AP: $250,000 + 5%= |$262,500 | | | |Net investment in working capital = AR + Inventory – AP | | |=$367,500 + $525,000 – $262,500 = |$630,000 | | | | | | | |The new sales will be |$1,300,000 + 5% = |$1,365,000 | | |Sales/day = | |$3,739. 3 | | |The new COGS will be |$1,200,000 + 5% = |$1,260,000 | | |COGS/day = | |$3,452. 05 | | (b)      What will be the impact on its net investment in working capital in 2006 if Robinson is able to reduce its collection period by five days, its inventory period by six days, and increase its payment period by two days? |The new sales will be |$1,300,000 + 5% = |$1,365,000 | |Sales/day = | |$3,739. 3 | |The new COGS will be |$1,200,000 + 5% = |$1,260,000 | |COGS/day = | |$3,452. 05 | |Estimated AR if collection period red uced by |5 |days: | |New AR = sales/day x collection period | | | |Sales/ day = |$3,739. 73 | | | |Old collection period |98. 27 | | | |New collection period |93. 27 | | | |New AR estimate= |$348,801. 7 | | | | | | | | |Estimated inventory if conversion period reduced by |6 |days: | |New Inv = COGS/day x conversion period | | | |COGS/day |$3,452. 05 | | | |Old conversion period |152. 08 | | | |New conversion period |146. 08 | | | |New Inv estimate= |$504,287. 7 | | | | | | | | |Estimated AP if payment period increased by |2 |days: | |New AP = sales/day x payment period | | | |COGS/day |$3,452. 05 | | | |Old payment period |76. 04 | | | |New payment period |78. 04 | | | |New AP estimate= |$269,404. 1 | | | | | | | | |2006 working capital = AR + Inventory – AP | | | |=$360,020. 55 + $514,643. 84 â€⠀œ $259,047. 95 | | | |=$583,684. 93 | | | | |which is a reduction of |$46,315. 07 |from part a) | 9. Robinson expects its 2006 sales and cost of goods sold to grow by 20 percent over their 2005 levels. (a)      What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2005 levels? What will be its net investment in working capital? If the ratios remain the same, a | | | |20 percent increase in sales and COGS will increase AR, | |inventory, and AP proportionately in 2006 | | | |AR: $350,000 + 5%= |$420,000 | | | |Inv: $500,000 + 5%= |$600,000 | | | |AP: $250,000 + 5%= |$300,000 | | | |Net investment in working capital = AR + Inventory – AP | | |=$367,500 + $525,000 – $262,500 = |$720,000 | | | | | | | |The new sales will be |$1,300,000 + 20% = |$1,560,000 | | |Sales/day = | |$4,273. 97 | | |The new COGS will be |$1,200,000 + 20% = |$1,440,000 | | |COGS/day = | |$3,945. 21 | | b)      What will be the impact on its net investment in working capital in 2006 if Robinson is able to reduce its inventory period by ten days? |Estimated AR if collection period reduced by 0 days: | |New AR = sales/day x collection period | | | |Sales/ day = |$4,273. 97 | | | |Old collection period |98. 27 | | | |New collection period |98. 27 | | | |New AR estimate= |$420,000. 0 | | | | | | | | |Estimated inventory if conversion period reduced by 10 days: | |New Inv = COGS/day x conversion period | | | |COGS/day |$3,945. 21 | | | |Old conversion period |152. 08 | | | |New conversion period |142. 08 | | | |New Inv estimate= |$560,547. 5 | | | | | | | | |Estimated AP if payment period increased by 0 days: | |New AP = sales/day x paym ent period | | | |COGS/day |$3,945. 21 | | | |Old payment period |76. 04 | | | |New payment period |76. 04 | | | |New AP estimate= |$300,000. 0 | | | | | | | | |2006 working capital = AR + Inventory – AP | | | |=$360,020. 55 + $514,643. 84 – $259,047. 95 | | | |$680,547. 95 | | | | |which is a reduction of |$39,452. 05 |from part a) | | 10. Following are financial statements for the Genatron Manufacturing Corporation for the years 2004 and 2005: Selected Balance Sheet Information 2004            2005 Cash | $ 50,000 |$ 40,000 | |Accounts receivable |200,000 |260,000 | |Inventory |450,000 |500,000 | |Total current assets |$700,000 |$800,000 | |Bank loan, 10% |$ 90,000 |$ 90,000 | |Accounts payable |130,000 |170,000 | |Accruals |50,000 |70,000 | |Total current liabilities |$270,000 |$330,000 | |Long-term debt, 12% |300,000 |400,000 | Selected I ncome Statement Information 2004            2005 |Net sales |$1,300,000 |$1,500,000 | |Cost of goods sold |780,000 |900,000 | |Gross profit |$ 520,000 |$ 600,000 | |Net income |$93,000 |$ 114,000 | Calculate Genatron’s operating cycle and cash conversion cycle for 2004 and 2005. Why did they change between these years? Inventory period           = Inventory/(COGS/365)                            = $500,000/($900,000/365) = 202. 78 days (2005)                            = $450,000/($780,000/365) = 210. 58 days (2004) AR period = AR/(Sales/365) = $260,000/($1,500,000/365) = 63. 27 days (2005)                  = $200,000/($1,300,000/365) = 56. 15 days (2004) AP period = AP/(COGS/365) = $170,000/($900,000/365) = 68. 94 days (2005)                  = $130,000/($780,000/365) = 60. 83 days (2004) Operating cycle = Inventory period + AR period 202. 78 days + 63. 27 days = 266 . 05 days (2005)                            = 210. 58 days + 56. 15 days = 266. 73 days (2004) Cash conversion cycle = Operating cycle – Average payment period                                      = 266. 05 days – 68. 94 days = 197. 11 days (2005)                                      = 266. 73 days – 60. 83 days = 205. 90 days (2004) The operating cycle remained constant in 2004 and 2005 as a reduction in the inventory period was balanced by an increase in the average collection period. The cash conversion cycle sell for 2005 was longer. Genatron took, on average, longer to pay its suppliers. 11. Genatron Manufacturing expects its sales to increase by 10 percent in 2006. Estimate the firm’s investment in accounts receivable, inventory, and accounts payable in 2006. If the inventory, collection, and payment periods remain constant, each account should rise by 10 percent. $260,000 (1. 10) =? Accounts receivable: $286,000 $500,000 (1. 10) = $550,000? Inventory: $170,000 (1. 10) = $187,000? Accounts payable: 12 . With concerns of increased competition, Genatron is planning in case its 2006 sales fall by 5 percent from their 2005 levels. If cost of goods sold and the current asset and liability accounts decrease proportionately, (a) Calculate the 2006 cash conversion cycle.  | | | | |5% decline | | |2004 | |2005 | |2006 | |Sales |$1,300,000 | |$1,500,000 | |$1,425,000 | |Cost of Goods sold |$780,000 | |$900,000 | |$855,000 | |profit margin |7. 2% | |7. 6% | | | |Net income |$93,000 | |$114,000 | | | |Accounts Receivable |$200,000 | |$260,000 | |$247,000 | Inventory |$450,000 | |$500,000 | |$475,000 | |Accounts Payable |$130,000 | |$170,000 | |$161,500 | | | | | | | | |Sales/ day = |$3,561. 64 | |$4,109. 59 |= $1,500,000/365 |$3,904. 11 | |COGS/day= |$2,136. 99 | |$2,465. 75 |= $900,000/366 |$2,342. 47 | | | | | | | | |Inventory conversion period = Inventory/COGS per day | | | |210. 58 |days |202. 78 | |202. 8 | | | | | | | | |Average collection period = AR/sales per day | | | |56. 15 |days |63. 27 | |63. 27 | | | | | | | | |Average payment period = AP/COGS per day | | | |60. 8 |days |68. 94 | |68. 4 | | | | | | | | |Operating cycle = Inventory conversion + collection periods | | | |266. 73 |days |266. 04 | |266. 04 | | | | | | | | |Cash cycle = Inventor y conversion + collection period – payment period | | | |205. 90 |days |197. 10 | |197. 10 | (b) Calculate the 2006 net investment in working capital. Net investment in working capital = AR + Inventory – AP (as used in this chapter) | |2004 |2005 |2006 | | | | | |=$247,000+$475,000-$161,500 | |$520,000 |$590,000 |=$560,500 | | | 13. .In problem 10 we assumed the current asset and liability accounts decrease proportionately with Genatron’s sales. This is probably unrealistic following a decline in sales. What will be the impact on the working capital accounts if its collection period lengthens by five days, its inventory period lengthens by seven days, and its payment period lengthens by three days if Genatron’s sales and COGS fall 5 percent from their 2005 levels? |The new sales will be |$1,500,000 – 5% = |$1,425,000 | | | |Sales/day = |$3,904. 11 | | |The new COGS will be |$900,000 – 5% = |$855,000 | | | |COGS/day = |$2,342. 7 | | | | | | | |Estimated AR if collection period lengthens by |5 |days: | |New AR = sales/day x collection period | | | |Sales/ day = |$3,904. 11 | | | |Old collection period |63. 27 |(from problem 10) | | |New collection period |68. 27 | | | |New AR estimate= |$266,520. 5 | | | | | | | | |Estimated inventory if conversion period lengthens by |7 |days: | |New Inv = COGS/day x conversion period | | | |COGS/day |$2,342. 47 | | | |Ol d conversion period |202. 78 | | | |New conversion period |209. 8 | | | |New Inv estimate= |$491,397. 26 | | | | | | | | |Estimated AP if payment period increased by |3 |day: | |New AP = sales/day x payment period | | | |COGS/day |$2,342. 47 | | | |Old payment period |68. 4 | | | |New payment period |71. 94 | | | |New AP estimate= |$168,527. 40 | | | | | | | | |2006 working capital = AR + Inventory – AP | | | |=$266,520. 55 + $491,397. 26 – $168,527. 40 | | | |=$589,390. 1 | | | | |which is an increase of |$28,890. 41 |from problem 10. | | 14. .Suppose Global Manufacturing is planning to change its credit policies next year. It anticipates that 10 percent of each month’s sales will be for cash; two thirds of each month’s receivables will be collected in the following month, and one-third will be collected two months followin g their sale. Assuming the Global’s sales forecast in Table 10. 5 remains the same and the expected cash outflows in Table 10. 6 remain the same, determine Global’s revised cash budget. Nov. Dec. Jan. Feb. Mar. Apr. Sales                            $80,000  $100,000    $ 30,000  $ 40,000    $ 50,000    $ 60,000       Cash (10%)                                                         3,000        4,000        5,000        6,000       1 Month Later (2/3)                                          60,000      18,000      24,000      30,000 [pic][pic][pic][pic]      2 Months Later (1 /3)                                        24,000      30,000        9,000      12,000       Total Cash Receipts                                       $ 87,000  $ 52,000    $ 38,000    $ 48,000 [pic][pic][pic][pic]      Less: Total Cash Payments                             60,000    127,000      44,000      40,000       Net Cash Flow                                                 $ 27,000  $ –75,000    $ –6,000    $ 8,000 [pic][pic][pic][pic]      Beginning Cash Balance                                  25,000      52,000      25,000      25,000       Cumulative Cash Balance                              $ 52,000  $ –23,000    $ 19,000    $ 33,000 Monthly Loan                                                        (or repayment) 0      48,000        6,000      –8,000       Cumulative Loan Balance                                        0      48,000      54,000     46,000       Ending Cash Balance        How to cite Managing Working Capital, Essay examples
Friday, December 6, 2019
Demand Supply Of LNG Management In Australia-Myassignmenthelp.Com
Question: Discuss About The Demand And Supply Of LNG Management In Australia? Answer: Introducation Demand and supply of a commodity can be identified as two of the major constituents affecting the prices of the same. Precisely, the demand and supply side of commodities has also depended on a number of factors regulating the prices to change. In this particular study, the impact of increasing international demand for liquefied natural gas (LNG) on the prices in Australia has been elaborated providing substantial evidence (Rudolph, 2016). According to the reports, by 2021-22, the entire value of the LNG exports in Australia has been estimated to reach $42 billion from $17 billion in 2015-16 (Drahos, 2017). The report published by the Australian Government in the article Resource and Energy Quarterly has confirmed that due to the increase in global demand and supply challenges in the long-term, the LNG prices in Australia have been forecasted to rise. In the meanwhile, the surge in the future contract prices can be identified as one of the leading drivers of surging the commodity price (Perry, 2016). On the other side, there are several risk factors associated with supply side as well (Bolle, 2011). Due to increase in the numbers of global competitors and reduction in the investment in the Australian oil and gas sector, the LNG projects in Australia are anticipated to decline. In terms of LNG demand from the global side, the international gas consumption is expected to surge at an average annual rate of 1.7% in the next five years or so (Drahos, 2017). Due to increased demand from the emerging economies in Asia and the European Union nations, the LNG export infrastructure will get a boost in the Australia and US to meet the supply growth. In the meanwhile, LNG imports forecasts till 2022 have been presented as below: Figure: LNG Imports Forecasts Source: (Drahos, 2017) As described in the figure, excluding Japan, the forecast has confirmed that the demand of LNG is expected to increase from South Korea, China, emerging Asian economies, Europe, and the rest of the world economies. In terms of numbers, by 2022, the consumption forecast of LNG is expected to reach 330 billion cubic metres, up by 65%. Therefore, import of LNG in China will rise to 48 million tonnes by 2020, up by 19% (Drahos, 2017). Evidently, China will be the largest LNG importing nations in the world contributing towards the demand growth of the resource in a single handed way. Furthermore, import of LNG from emerging Asian economies i.e. India, Afghanistan, and Pakistan, etc. has estimated to increase that will evidently benefits the Australian exports. As a result of the consequences, the prices of LNG in Australia will maintain an upward curve in the future as well. Irrespective of Australia being the second largest exporter of LNG across the globe, it is expected to face a shortage of supply of natural gas in the upcoming years. According to Bruce Robertson (an energy specialist), the Australian Government has allowed the gas extracting companies to sell its precious energy resources in the overseas market without considering the future needs of the Australian people (Smead, 2015). Hence, the major consequence that can be expected in the upcoming years is a shortage of LNG by the end of 2020. Furthermore, it is expected that the price of LNG will increase at an unexpected rate due to its growing demand in the international as well as domestic market and shortage of supply due to extinction of the natural resources. In order to explain the challenges for Australia economy regarding the price of LNG, the demand and supply curve theory has been applied in this context. It can be seen that the increase consciousness among the Australian consumers and development of technology will lead to a minimum level of rise in the quantity demanded for natural gas in the future (Giri and Roy, 2011). However, the higher level of export in the current years will lead to undersupply of LNG by a huge amount. Hence, the price of LNG is expected to increase by a huge amount in the future. A demand and supply curve diagram has been presented below for better understanding: Figure: Demand and Supply of LNG Source: (Gilman, 2016) On the basis of the above figure, it can be seen that the huge fall in supply of LNG in the local market will lead to a leftward shift in the Supply Curve from S to S1. In the same manner, the increase in the quantity demanded by a smaller amount in the domestic market will lead to a rightward shift in the Demand Curve from D to D1. Hence, the market equilibrium will shift from E to E1 leading to an increase in the price from P to P1. On the basis of the above analysis, it can be seen that a hike in the price of LNG will be evident in the Australian economy, which will lead to an economic imbalance in the nation. Chang (2017) suggest that the Australian government must put a check on the export quantity of natural gas in order to maintain market equilibrium in the future. For example, the government can impose a higher tax rate for export of LNG and the revenue earned from the export of the commodity can be used as subsidies to maintain a equilibrium price in the Australian market (Hattwick, Brown and Sailors, 2014). The discussion in the study has identified that the global demand of LNG has estimated to be increased at a considerable rate in the next five years. Due to continuous surge in demand of LNG, the Australia LNG exports will be expected to reach at a record high in the near future. On the other hand, some of the supply side challenges can play a major role fuelling the future contract prices of LNG. Driven by the global demand growth and internal supply challenges, the prices of LNG in Australia has recovered from US$ 7.2 a gigajoule in 2017 from a record low of US$ 5.5 a gigajoule in 2016. The surge of the prices in LNG is expected to maintain the incline supported by demand growth in the global market. Hence, it is important for the Australian Government to put a check on the production and export of LNG in order to maintain market equilibrium in the industry References Bolle, F. (2011). Competition with supply and demand functions.Energy Economics, 23(3), pp.253-277. Chang, C. (2017).The raw deal Australians get over their gas. [online] NewsComAu. Available at: https://www.news.com.au/finance/economy/australian-economy/how-australia-is-being-screwed-over-its-gas/news-story/4187e60617aec18e87d57453cfca0167 [Accessed Aug. 2017]. Drahos, N. (2017). Resources and Energy Quarterly. [online] 5(5), pp.61-72. Available at: https://industry.gov.au/Office-of-the-Chief-Economist/Publications/Documents/req/Resource-and-Energy-Resources-Quarterly-March-2017.pdf [Accessed Aug. 2017]. Gilman, L. (2016).Economics. 3rd ed. Minneapolis: Lerner Publications. Giri, B. and Roy, B. (2011). Supply Chain Coordination with Price-Sensitive Demand Under Risks of Demand and Supply Disruptions.Technology Operation Management, 2(1), pp.29-38. Hattwick, R., Brown, B. and Sailors, J. (2014).Demand, supply, and the market mechanism. 5th ed. Englewood Cliffs, N.J.: Prentice-Hall. Perry, J. (2016).Energy prices. 4th ed. New York: Nova Science Publishers. Rudolph, M. (2016). Natural Gas Supply, Demand and Prices.Natural Gas, 4(9), pp.29-30. Smead, R. (2015). Gulf Coast LNG Exports Still Moving Despite Oil-Price Decline.Natural Gas Electricity, 31(10), pp.28-32.
Subscribe to:
Posts (Atom)