liquidity Archives - Page 7 of 7 - treasuryXL

Het belang van cash management in de aanloop naar bedrijfsoverdracht

| 30-11-2016 | Peter Schuitmaker |

Het belang van cash management in de aanloop naar bedrijfsoverdracht wordt vaak onderschat. Onnodig en zonde! Want cash management levert onmiddellijk een verbetering van de liquide positie of een verlaging van de rentedragende schulden.

Als voorbeeld een handelsonderneming. De omzet is 100. De bruto marge is 15. De directe kosten zijn 10. De onderneming groeit met een 2%, vergelijkbaar met de prijsindex. We kunnen hier dus spreken over een stabiele exploitatie in een evenwichtige omgeving. De onderneming wordt gewaardeerd op basis van de methodiek Adjusted Present Value. De waarderingsuitkomst komt uit op 30.

Qua werkkapitaal heeft de onderneming zijn de zaken echter niet goed op orde. De omloopsnelheid voorraden is 4. Dat wil zeggen: de gemiddelde verblijftijd van de voorraad is circa 90 dagen. Ook betalen de debiteuren structureel te laat door onvoldoende debiteurenbeheer. De overeengekomen betalingstermijn is 30 dagen. Maar de betalingstermijn is gemiddeld 60 dagen.

Waarderingsmethodiek Adjusted Present Value

De waarderingsmethodiek Adjusted Present Value is bij uitstek geschikt om business modellen en strategische opties door te rekenen. Met name om te beoordelen of er optimaal aan waarde-creatie wordt gewerkt. Zo geeft De APV methodiek handvatten voor de evaluatie van strategische opties.

Een omloopsnelheid voorraden van 15 x lijkt theoretisch haalbaar. Praktisch gezien kan 12 x worden gerealiseerd. Door stringenter debiteurenbeheer lijkt een debiteurentermijn van 35 dagen haalbaar. Wanneer deze verbeteringen over een periode van 2 jaar worden geïmplementeerd wordt waarde toegevoegd. Met management begroot incidentele ontwikkelingskosten van 0,5% van de omzet gedurende jaar 1 en 2. Daarbij valt te rekenen met structurele beheerkosten van 0,9% van de omzet. De waarderingsuitkomst komt nu uit op 40: een verbetering van 33%. Deze verbetering wordt enkel en alleen bereikt door de implementatie van een beter cash management.

Kortom: op weg naar bedrijfsoverdracht? Evalueer eerst uw cash management!

Peter Schuitmaker van BBO&F BREDA is Register Adviseur Bedrijfsopvolging. Hij is auteur van diverse boeken over bedrijfsoverdracht. Onlangs verscheen zijn boek “Een bedrijf overnemen? Keuzes maken en stappen zetten”. Dit boek is geschreven voor professionals die zich willen oriënteren op bedrijfsoverdracht.

Peter Schuitmaker

Registered Advisor for Business Transfer and Succession

FX Swaps vs Libor and EURIBOR: Arbitrage opportunities?

| 05-07-2016 | Rob Söentken |

As we are getting closer to the end of the month, end of Q2 and end of H1 of 2016, it is interesting to see financial markets are maneuvering to get the right liquidity on board for the balance sheet. Or get rid of the unwanted liquidity. For firms with liquidity in various currencies the best means for liquidity management is FX swaps.

What is an FX swap?

In a very simple definition the FX swap is like an exchange of deposits. The big advantage is that the counterparty risk is reduced due to the exchange of notional. Operationally an FX swap is booked as two FX transactions: one to convert and another to revert. The conversion rate is against the prevailing exchange rate. The reversion rate is against the conversion rate plus or minus some ‘swap points’, which reflect the interest rate differential between the respective currencies. During the tenor the exchange rate could change, which creates counterparty risk on the mark-to-market value of the reversion. Mark-to-market risk for tenors up to 1 year is still a small when compared to full notional risk.

How would an FX swap work in theory?

In diagram 1 the Libor and Euribor fixings for USD and EUR are listed for the respective tenors. Now if we would consider exchanging a USD deposit versus a EUR deposit for 1 year the cash flows would be as follows:
For the conversion date we take value spot (ie 2 days, in this case that is per June 30^th) and we agree to exchange EUR 1 Mio vs USD 1.1048 Mio (because EUR 1 Mio at current spot of 1.1048 is USD 1.1048 Mio)

For the reversion date we take the value date for 1 year from today’s spot date. We calculate the following amounts including interest:

EUR 1 Mio x (1 + -0.05% x 365 / 360) = EUR 999,493.06

USD 1.1048 Mio x (1 + 1.20% x 365 / 360) = USD 1,118,241.73

Dividing the USD amount by the EUR amount gives the exchange rate for the reversion on the forward date, in this case that is 1.1188089. This is called the ‘forward rate’ The difference to the spot exchange rate is 0.0140089. For simplicity reasons this is multiplied by 10,000 to 140.089. This reflects the interest differential.

When executing an FX swap the EUR amounts are kept constant for both the spot and forward dates. But the USD amounts are calculated using the spot and forward exchange rates as calculated above. Therefor the interest differential is reflected in the USD amount being different between spot and forward date.

How does it work in reality?

As I mentioned at the beginning of this article, the current situation is special because we are getting close to a date special and important for balance sheet reporting. Supply and demand may push the market in a direction.

When looking at the actual FX swap rates and taking the EUR Euribor fixings as given, we can deduce the implied USD funding rates (see diagram 2). First observation is that the FX swaps appear to reflect either a substantial demand for USD from June 30^th to July 1^st, or a EUR supply. It is interesting to see that the 1 week fixing for EUR was not affected, while the 1 week FX swap was affected maybe 20 bppa. One reason could be the timing of the rates. Euribor is taken at one moment during the day, while FX swaps are affected by events during the day. Because we are looking at a single day FX swap, the annualized rate could swing a lot.

Another observation is that the interest rate differential between EUR and USD is actually bigger than implied by the fixings. For one month tenor the difference is 0.59% p.a.. It would seem possible that supply – demand forces can push FX swaps away from the deposit markets. Likely the counterparty limit constraints on pure deposits keep them from being arbitrages vs FX swaps, like they used to be many years ago.

How can a treasurer benefit from FX swaps?

Each individual and organization should determine for itself what he/she or it needs. And I do not want abstract from discussions around documentation requirements, collateral financing and administration, and the operational extra work. It seems obvious that there are opportunities to investigate.

One key area would be to look at the bid-offer spreads on cash liquidity in various currencies as provided by house-banks and compare those rates with and without using FX swaps. Also I could imagine non-house banks could be more competitive in providing FX swaps, while the counterparty risk is substantially smaller than when pure lending is concerned.

Rob Söentken

Ex-derivatives trader

How to improve Cash Awareness without targets

| 08-06-2016 | Olivier Werlingshoff |

Many CFO’s and Financial Managers would like to improve the cash awareness inside their companies. The most obvious action is to set up financial targets but how could a change of mindset be reached without new targets? One way is to see cash awareness as a product and to try to sell this product inside the company.

If cash awareness is a product; what are the benefits of this product, why would someone like to buy this new product? In fact, you would have to develop a marketing approach and analyze some of the marketing P’s. I will give you some examples:

Product:

Try to translate Cash Awareness into a product. You could use the term “Cash is King” and find an appropriate symbol or picture for it.

The second step is to enumerate the benefits of cash awareness for the company. One of the benefits is looking at different business processes from a cash point of view. Those processes could probably be improved in a way where liquidities could be released from the company in a faster way.

For example: if you send the invoice by mail the same day you receive the order from your client, you will receive the money faster.

Promotion:

When you know how to make Cash Awareness visible, you have to work on the promotion of it. To give you a few ideas: the first thing I did was getting a ‘Cash King cup’. Every three months I gave the Cup, with his or her name on it, to the colleague with the best idea on how to improve the release of liquidities. I made a picture of him or her with the Cash King cup and mailed it inside the company and put it on the intranet.

To ensure everybody was there when the Cup was awarded, posters were hang and (senior) managers were invited to come to the event. Encourage managers to come by inviting some directors of the company and ask them to give a presentation!

During the event you can give an update of all the ideas you received from colleagues to improve processes and what the financial benefits are of those ideas. To ensure the idea will be implemented you have to make sure the colleague is responsible for his or her idea and try to get the support from the management so it could be implemented. Be aware that without their support it would be difficult to implement the idea!

Positioning:

A third P is the P of Positioning. Develop a habit of constantly looking at the positioning of the product “Cash Awareness” in the company. Think and check how your colleagues think and talk about Cash Awareness when you are not in. You could do this by “walking around” and listening.

Once you have developed your marketing strategy, you should use the “P formula” to continually evaluate and re-evaluate your activities.

Olivier Werlingshoff

Owner of WERFIAD

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