04 Financial Management

1. Operating Cycle Flows: Linked to daily activities and cyclical operations.

   • Example: Procurement [Beschaffung], production, and commercialization.

2. Renewal Cycle Flows: Related to investments and financing (acyclic flows).

   • Example: Asset investments [Anlageninvestitionen] and capital funding [Kapitalfinanzierung].

1. Supply Cycle: Purchasing raw materials.

2. Production Cycle: Transforming raw materials into finished products.

3. Marketing Cycle: Selling products and collecting payments.

The operating cycle refers to the flow of funds through:

1. Raw material inventory.

2. Production of intermediate and finished products.

3. Income from customers.

Example:

1. The renewal cycle deals with non-current activities such as:

   1. Asset investments.

   2. Disinvestments.

   3. Capital sourcing (e.g., shareholders, banks).

2. It is more strategic and sporadic compared to the operating cycle.

1. Manage financial flows (inflows and outflows).

2. Avoid excesses [Überschüsse] or deficits in funds [Mitteln].

3. Coordinate financial decisions with operational activities, such as:

   • Customer payment terms.

   • Supplier deadlines.

   • Staff-related payments (e.g., holiday bonuses).

1. Financing Working Capital: The surplus of permanent capital over non-current assets.

2. Operational Working Capital: The excess of current assets over short-term liabilities.

3. Dynamic Definition: A set of values reused cyclically during operations.

Working Capital (WC)-Working Capital Needs (WCN)=Net Treasury (NT)

WC: Surplus of long-term capital.

WCN: Funds [Mittel] required for business operations.

NT: Net cash available after covering operating requirements.

WCN represent the funds required to support the business cycle, including inventory, receivables, and payables.

—>They coincide [überstimmen] with the phases of the operating cycle.

1. Clients Table: Starting balance, sales, receipts, and final balance.

2. Suppliers Table: Starting balance, purchases, payments, and final balance.

3. Financial Plan: Starting balance, inflow and outflow of funds, and final balance

1. Rotation times measure how quickly funds circulate through the business cycle (e.g., inventory turnover, receivables collection).

2. Shorter rotation times reduce working capital needs and improve liquidity.

1. Provide funds for operational and strategic needs.

2. Prepare financial and treasury budgets for smooth fund allocation [Mittelzuweisung].

3. Align [Abstimmen] cash flow forecasts with company objectives [Unternehmenszielen].