UDESH REGULAR

FOR GROUP-2, MAY 2024

§ Subject- Financial Management

§ Chapter- Dividend Decisions

§ Lecture No.- 1
Recap of Previous Lecture

Topic Doubts Solving

Topics to be Covered

Topic Concept & Questions

 Receivables Management

Receivables Management
Credit period
Credit Policy
Discount Policy
Factoring
 Receivables Management
2. Credit period
It is the duration by which the amount becomes due and must be paid by the debtors.

Overdue
- When debtors exceed credit period or don’t’ pay withing credit period
 Receivables Management
3. Statement of Evaluation of Credit Policy

Particulars Existing Option I Option II

Sales -- -- --
Less: Variable cost -- -- --
Less: Fixed cost -- -- --
Less: Bad debts -- -- --
Less: Discount -- -- --
Profit before tax -- -- --
Less: Tax -- -- --
Profit after tax -- -- --
Less: Opportunity cost on -- -- --
investment in debtors
Net Benefit -- -- --
Incremental benefit -- --
 Receivables Management
4. Points to Remember (PTRs)
- Contribution = Sales – Variable Cost
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- PV Ratio = ×100 = 100 – Variable Cost Ratio
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- If Average cost per unit is given than

Fixed cost = (Average cost per unit – Variable cost per unit) ´ No. of units
- If Debtors turnover Ratio (DTR) is given then
."$*+ /"-$
Average Investment in debtors =
0.1

- Special care to be taken regarding opportunity cost rate whether it is before tax or after tax and
accordingly tax treatment should be done.
- ACP = (Days)(W1) + (Days)(W2) +……..+ (Days)(Wn)
 Receivables Management
5. Discount Policy
Meaning of discount terms
1/10 Net 40
Get 1% discount if paid within 10 days else pay withing 40 days without discount.

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Effective/Implied Annual rate of Discount = × ×100
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 Receivables Management
6. Factoring
In this case, factor provides various kinds of services to the business such as collection,
advances, etc.
Statement of Evaluation of Factoring Proposal
Particulars Amount
Saving in Bad debts --
Saving in administration cost --
Interest / Opportunity cost saving --
Any other savings --
Total Savings (A) --
Factoring Commission --
Interest cost on advance --
Any other cost --
Total Costs (B) --
Net Benefit or Cost (A – B) --
 Receivables Management
7. Points to Remember (PTRs)
(A) Factoring commission = Annual credit sales ´ Commission %
(B) Calculation of amount of advance
Particulars Amount
Annual credit sales --
(-) Factor Reserve --
(-) Factoring Commission --
Amount available for advance --
(-) Interest --
Amount of Advance --
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(C) Rate of effective cost of factoring = ×100
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(D) Compare rate of effective cost of factoring with bank interest rate to take decision.
 Receivables Management
8. Management of Payables

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Effective/Implied Annual rate of Discount = × ×100
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Thank You