Premium Essay

Managing Liquidity

In: Business and Management

Submitted By calhoosier
Words 1680
Pages 7
Lawrence Sports Simulation: Managing Liquidity

Lawrence Sports Simulation: Managing Liquidity
This paper will discuss the three alternative working capital policies that manage working capital. Team D will identify the policy in which the team believes that Lawrence uses and will then make a recommendation on what policy Lawrence Sports should continue to use. This paper will then go on to include an evaluation of the risks that are associated with each of the policies as well as discuss the contingencies for the policy in which is recommended. This paper will also discuss the performance measures that could be used to evaluate the team’s recommendation. Finally, this paper will discuss an implementation plan for the team’s recommendation.
Alternate Capital Policies
Current Policy (Conservative Approach)
The current policy in place at Lawrence is one that can be considered a conservative approach. The Conservative Approach uses long-term financing for the company’s long term assets, a few of the company’s temporary current assets, and all of the company’s permanent current assets (Emery et al., 2008). This has resulted in high costs of financing for Lawrence Sports with little risk; causing the company’s profitability to be low. Simply put; Lawrence has predominantly financed all of its current assets using long-term sources of financing where only a small portion of its assets sing short-term financing. This presents the risk of Lawrence developing a liquidity issue as a result of withdrawal of the company’s source of finance; meaning that Lawrence may come close to exhausting its available sources of financing options.
Maturity Matching Approach
Another alternative approach is the Maturity-Matching Approach. According to chapter 22, the Maturity-Matching Approach “finances long-term assets by issuing long-term debt and equity securities. In addition,...

Similar Documents

Premium Essay

Financial Statements

...LIQUIDITY MANAGEMENT 2.0 OBJECTIVES: In this unit, an attempt has been made to understand the following aspects of liquidity management: ● Definition of Liquidity ● Dimensions and Role of Liquidity Risk Management ● Measuring and Managing Liquidity ● Measurement of Liquidity through Ratio Analysis 2.1 INTRODUCTION: The objectives of ALM are two fold: ensuring profitability and ensuring liquidity. Liquidity which is represented by the quality and marketability of assets and liability exposes the organization to liquidity risk. Unlike other risks like interest rate risk, market risk, operational risk etc. that can threaten the very solvency of the bank, liquidity risk is a normal aspect of every day management of a financial institution. In extreme cases, liquidity problems translate into solvency risk problems. As such, bankers should be more aware of the need for bank liquidity. 2.2 DEFINITION: Banks need liquidity to meet deposit withdrawals and to fund loan demands. The variability of loan demand and variability of deposit determine a bank’s liquidity needs. Liquidity represents the bank’s ability to accommodate decreases in liability and to fund increases in assets. A bank is said to have sufficient liquidity when it can obtain sufficient funds either by increasing liabilities or by converting assets, promptly at a reasonable cost. 2.3 DIMENSIONS & ROLE OF LIQUID & RISK MANAGEMENT: Bank’s liquidity management is the process of generating...

Words: 2842 - Pages: 12

Free Essay

Economic Liquidity

...willing buyers and sellers. Another elegant definition of liquidity is the probability that the next trade is executed at a price equal to the last one.[citation needed] A market may be considered deeply liquid if there are ready and willing buyers and sellers in large quantities. This is related to market depth that can be measured as the units that can be sold or bought for a given price impact. The opposite is that of market breadth measured as the price impact per unit of liquidity. An illiquid asset is an asset which is not readily salable due to uncertainty about its value or the lack of a market in which it is regularly traded. The mortgage-related assets which resulted in the subprime mortgage crisis are examples of illiquid assets, as their value is not readily determinable despite being secured by real property. Another example is an asset such as a large block of stock, the sale of which affects the market value. The liquidity of a product can be measured as how often it is bought and sold; this is known as volume. Often investments in liquid markets such as the stock market or futures markets are considered to be more liquid than investments such as real estate, based on their ability to be converted quickly. Some assets with liquid secondary markets may be more advantageous to own, so buyers are willing to pay a higher price for the asset than for comparable assets without a liquid secondary market. The liquidity discount is the reduced promised yield or......

Words: 1020 - Pages: 5

Free Essay

Likvidnost

...[pic] |РЕПУБЛИКА МАКЕДОНИЈА УНИВЕРЗИТЕТ "Св. КИРИЛ И МЕТОДИЈ"-СКОПЈЕ ЕКОНОМСКИ ИНСТИТУТ-СКОПЈЕ | |[pic] | | ПОСТДИПЛОМСКИ СТУДИИ ОД ОБЛАСТА НА ЕКОНОМСКИТЕ НАУКИ НАСОКА ФИНАНСИСКИ МЕНАЏМЕНТ ЛИКВИДНОСТ И УПРАВУВАЊЕ СО ЛИКВИДНОСТА ВО БАНКИТЕ (семинарска работа од предметот: Комерцијално банкарство) Студент: Ивана Чадиковска Досие бр. 787 Mentor: Доц. Д-р Климентина Попоска Доц. Д-р Неда Петроска Ангеловска Скопје, Април 2010 СОДРЖИНА ВОВЕД ----------------------------------------------------------------------------------------- 3 I. ПОИМ ЗА ЛИКВИДНОСТ-------------------------------------------------------------- 4 II. ПОБАРУВАЧКА И ПОНУДА НА ЛИКВИДНОСТ------------------------------- 5 III СТРАТЕГИИ ЗА УПРАВУВАЊЕ СО ЛИКВИДНОСТА-------------------------6 3.1 УПРАВУВАЊЕ СО ЛИКВИДНОСТ ПРЕКУ АКТИВА-------------------------6 3.1.1 Недостатоци на стратегијата – управување со ликвидност преку актива----------------------------------------------------------------- 8 3.1.2 Елементи на високо ликвидна актива ---------------------------------- 9 3.2 УПРАВУВАЊЕ СО ЛИКВИДНОСТ ПРЕКУ ПАСИВА-------------------------9 3.2.1 Предности и недостатоци на стратегијата – управување со ликвидност преку пасива ----------------------------------------------- 11 3.3......

Words: 4568 - Pages: 19

Premium Essay

Corporate Law Assignment

...The proposal was duly considered important as Juices Ltd operated an apple and pear juice producing business and owned ore hands around Australia and the juice container manufacturing business can provide Juice Ltd’s juice containers to the customer who already falls under Juice Ltd’s target market. In order to broaden the domain of its business the proposal was put forward by Chen who is a non executive director of the company though all the board members were suppose to be present in the board meeting else one of the non executive director could non- attend the meeting as on the same day and time she met with an accident and broke her arms and unable to receive treatment from the emergency department of the local hospital. The company managing director Uma was authorized the chairman Jack to acquisition within 10 minutes. Though the company’s chief financial officers Isaacs financial report was presented on the impact of the acquisition but unfortunately he was forbidden to participate in the board meeting and gain or deliver any views in regards to the business proposals. Though it was decided in the meeting to approve the acquisition and signing up of the contract by Uma to look took over the business on behalf of Juice’s lacking was detected in wrong financial analysis of $48 million purchase price which was an improper and over channelization of company’s fund. Moreover it was also revealed that the board of directors was not aware of the fact that most of the shares......

Words: 3710 - Pages: 15

Free Essay

Marketing

...Important Questions for Banks Finance Job 1. 2. 3. 4. 5. 6. 7. What do mean by a Bank, what kind of business a bank is doing? How banks earn profit? What are the product and services offered by a bank? What assets and liability products of a bank? What is net interest margin (NIM)? What deposit mobilization? Why these days the mobilizations are going down? What are the factors effecting deposit mobilization of a bank? What is RBI Credit Policy and how RBI control money supply and interest rate (definition and importance of CRR, SLR, Repo rate, Reverse Repo rate and Bank rate). What are the Securities qualify for SLR requirement of a bank? What is Open Market Operation (OMO) of RBI? What is base rate of a bank, how it is different from BPLR (Banks Prime Lending Rate). What is Credit rating and how it helps banks in credit appraisal of company. What is the process of the credit rating? If client approaches you for a project loan than how you are going to assess the credit worthiness of the client (important ratios use for credit appraisal) dead services coverage ratio, interest coverage ratio, etc. If you are working with a bank then are the important ratios for credit appraisal? What are your strengths weakness for your banking jobs? Do your SWOT analysis for a bank job. What are the main functional areas in a bank for finance professionals (treasury related jobs, risk management, credit appraisal, loans indication, merchant banking). What is IRR, how it is used for project......

Words: 1280 - Pages: 6

Premium Essay

Analysis of Financial Management

...1 ANNUAL REPORT 2014 Table of contents ABOUT THE COMPANY Letter of Transmittal Corporate Information Milestones Board of Directors and Management Brand Values Products 3 4 5 6 -8 9 10 OPERATING RESULTS Summary of Key Operating & Financial Data 11-12 AGM & COMPANY PERFORMANCE Notice of 35th Annual General Meeting Chairman’s Message to Shareholders Report of the Board of Directors 13 14 ANNUAL REPORT 2014 15 - 19 1 Table of contents COMPLIANCE REPORT Corporate Governance Compliance Report 20 - 38 FINANCIAL RESULTS Auditors’ Report to the Shareholders Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Shareholders’ Equity Statement of Cash Flows Notes to the Financial Statements Unit-wise Working Result Schedule of Non- Current Assets Certificate on Review of financial statements PROXY FORM 39 - 40 41 - 42 43 - 44 45 46 - 47 48 - 80 81 - 82 83 - 84 85 ANNUAL REPORT 2014 2 Letter of Transmittal December 6, 2014 Esteemed Shareholders Bangladesh Securities and Exchange Commission Dhaka Stock Exchange Limited Chittagong Stock Exchange Limited Registrar of Joint Stock Companies and Firms Dear Sir or Madam, Subject: Annual Report for the year ended June 30, 2014 It is our pleasure to inform you that the 35th Annual General Meeting of Olympic Industries Limited will be held on Wednesday, December 24, 2014 at 10:00 AM at our 2nd biscuit factory premises at Lolati, P.S. Sonargaon,......

Words: 25973 - Pages: 104

Free Essay

Finance

...Managing Risk at Commercial Bank 1. Interest Rate Risk  Interest Rate Risk (IRR) is the impact on interest income of the Bank due to possible changes in market interest rates as compared to current level. IRR constitutes the most significant component of market risk exposure of the Banking Book. Hence, the Bank monitors IRR on an ongoing basis giving due consideration to re-pricing characteristics of all assets and liabilities. Rate shocks of different magnitudes are applied to all assets and liabilities at regular intervals and the impact is monitored to ensure that the Bank’s earnings are within internally set parameters. Decisions to exceed such parameters taken at 2. Foreign Exchange Risk  Foreign Exchange Risk is the possible impact on earnings and capital due to fluctuations in exchange rates. This may arise as a result of existing maturity mismatches of foreign currency positions. The Bank is exposed to foreign exchange risk, whenever it undertakes transactions in any currency other than Bank’s base currency, i.e. Sri Lankan Rupee (LKR). Risk tolerance limits for FX exposures set by the Bank, which are more stringent compared to the regulatory limits of Central Bank of Sri Lanka (CBSL) parameters, ensure that the Bank maintains the un-hedged FX positions at an acceptable level to prevent potential losses from adverse fluctuations in FX rates.  The Bank is also exposed to FX Risk due to both......

Words: 1410 - Pages: 6

Premium Essay

Alm Practice in Banks: a Perspective of the Southeast Bank Ltd.

...------------------------------------------------- 1.0 INTRODUCTORY PART 1.1 Introduction: Every Financial Institute irrespective of its size is generally exposed to market liquidity and interest rate risks in connection with the process of Asset Liability Management. Failure to identify the risks associated with business and failure to take timely measures in giving a sense of direction threatens the very existence of the institution. It is, therefore, important that the strategic decision makers of an organization assume special care with regard to the Balance Sheet Risk management and should ensure that the structure of the institute’s business and the level of Balance Sheet risk it assumes are effectively managed, appropriate policies and procedures are established to control the direction of the organization. The whole exercise is with the objective of limiting these risks against the resources that are available for evaluating and controlling liquidity and interest rate risk. Asset Liability Management (ALM) can be defined as a mechanism to address the risk faced by a bank due to a mismatch between assets and liabilities either due to liquidity or changes in interest rates. Liquidity is an institution’s ability to meet its liabilities either by borrowing or converting assets. Apart from liquidity, a bank may also have a mismatch due to changes in interest rates as banks typically tend to borrow short term (fixed or floating) and lend long term (fixed or floating). A......

Words: 9186 - Pages: 37

Premium Essay

International Banking

...1. Introduction 3 2.Company Profile- Brief Overview 3 2.1 Consumer banking: 6 3. Liquidity Risk: 7 3.1 Measuring Liquidity Risk –SCB 7 3.2 Measuring Credit Risk Exposure 10 3.3 Market Rate Risk 11 3.4 Value at Risk (VaR) 12 4. CAMEL RATING SYSTEM 13 1. Executive Summary International Banking can be defined as banking transactions crossing national boundaries. The activities involves like international lending; claims of domestic bank offices on foreign residents, claims of foreign bank offices on local residents, claims of domestic bank offices on domestic residents in foreign currency are the major activities involved in International Banking. The evolution of banking history dates back to 2000 BC in Assyria and Babylonia; while the modern banking systems originated in Renaissance Italy. The major incentive for the growth of international banking was migration of domestic customers who were MNE’s growing foreign activities and the impacts of regulatory differences. The report is comprised of Liquidity risks, market risks, credit risks of Standard Chartered Bank Plc. The company also demonstrates the firm efficiency of the firm using CAMEL RATING SCALE. The overview of the analysis states that the firm is operating proficiently under the guidelines of BASEL. Introduction According to Lewis & Davis (1987, p. 219), international banking is a denotation of cross-border and cross currency facets of banking business. They classify international banking......

Words: 5714 - Pages: 23

Free Essay

Incorporating Liquidity Risk Into Var Model to Improve Risk Management and Applying the Liquidity Adjusted Value at Risk Model on Vietnamese Stock Market

...Thesis for the Degree of Master of...? INCORPORATING LIQUIDITY RISK INTO VAR MODEL TO IMPROVE RISK MANAGEMENT AND APPLYING THE LIQUIDITY ADJUSTED VALUE AT RISK MODEL ON VIETNAMESE STOCK MARKET Student: Ten truong: Ten khoa hoc: September, 2012 INCORPORATING LIQUIDITY RISK INTO VAR MODEL TO IMPROVE RISK MANAGEMENT AND APPLYING THE LIQUIDITY ADJUSTED VALUE AT RISK MODEL ON VIETNAMESE STOCK MARKET by student Avised by Ten giao su Submitted to Ten khoa of Ten truong in the partial fulfilment of the requirements for the degree of Master of ...? Dissertation Committee ...Ten thanh vien hoi dong ABSTRACT In this paper, based on Bangia et. al (1999) Liquidity Adjusted Value at Risk, an explanation and demonstration for the importance of integrate liquidity risk component into Value at Risk Model are presented. The component is considered to be resulted from the exogenous liquidity risk, indeed, the bid-ask spread of a stock or a portfolio. This research is conducted from the analysis of an estimation of Value at Risk (VaR) and Liquidity adjusted Value at Risk for two portfolios containing stocks that are currently trading on Vietnamese Stock Market. After applying the Bangia Model to calculate, the backtesting will be executed to check the accuracy level of the results. The difference between the results of two portfolios, according to separate approaches will be the evidence to reach the conclusion of the research. Table of Contents List......

Words: 27184 - Pages: 109

Free Essay

Treasury

...A Treasurer's Guide to Money Market Funds 2012 The World Behind Fitch’s MMF Ratings by Charlotte Quiniou, CFA, Director in Fitch Ratings Fund and Asset Manager Rating Group Fitch money market fund (MMF) rating is far more than just a stamp on a fund. Its value for investors comes from the depth and breadth of the underpinning rating analysis and process. A key component of a Fitch MMF rating is also the regular, independent surveillance performed by Fitch’s analysts, which supports ongoing dialogue with fund managers, so that systematic mechanical reactions are avoided. To better serve investors, Fitch provides information on rated MMFs and developments in the money market industry, notably based on MMF surveillance information, through freely available periodic publications and online tools. A Disciplined procedures ensure consistency Fitch conducts analysis and assigns ratings on MMFs following a consistent, disciplined process that is applied globally. The diagram in Figure 1 provides a summary view of the major steps followed by Fitch when assigning or reviewing a MMF rating. At the start of the rating process, each MMF is assigned to a group of two analysts: the primary (or lead) analyst, and the secondary (or back-up) analyst. Analysts are responsible for leading the analysis and formulating a rating recommendation. The primary analyst is typically responsible for the continuous surveillance of the rating, once it has been assigned, and maintaining the...

Words: 2130 - Pages: 9

Premium Essay

Risk Management

...EBB20603 RISK MANAGEMENT IN ISLAMIC FINANCIAL INSTITUTIONS DR. FEKRI ALI MOHAMMED SHAWTERI (IF70) REPORT CIMB ISLAMIC BANK BERHAD REPORTED BY: Nur Atteya Amanda binti Amirudin 62289214273 Syamimi Fatihah binti Mohd Sobri 62289214372 Nur Aizat binti Mun 62289214006 Norhafiza binti Alalguring 62289214119 Noor Rahimah binti Abdul Rauf 62289214281 TABLE OF CONTENTS NO | TOPIC | PAGES | 1.0 | Introduction | 3 | 2.0 | Bank Profile | 5 | 3.0 | Financial Analysis | 7 | 4.0 | Credit Risk | 14 | 5.0 | Liquidity Risk | 24 | 6.0 | Operational Risk | 27 | 7.0 | Market Risk | 30 | 8.0 | Shariah Risk | 34 | 9.0 | Capital Requirement | 36 | 10.0 | Conclusion | 39 | 11.0 | References | 39 | 1.0 INTRODUCTION CIMB Islamic was officially launched by Malaysia’s Bank Negara Governor Tan Sri Dato' Dr Zeti Akhtar Aziz in June 2003. Since then, CIMB Islamic has won numerous accolades for its innovative Shariah-compliant solutions. It providing the consumer market with an Islamic alternative for deposit accounts and financing. CIMB Islamic offers a range of deposit and investment products to help manage business cash flow and cash reserves more effectively such as Wadiah Current Account-I, Fixed Return Income Account-I, and Special Investment Account-I. The money will only be invested in Shariah-Compliant activities. In the context risk, risk refers to the probability of loss. Risk actually elucidates the probability that an actual return on an investment will be......

Words: 7514 - Pages: 31

Premium Essay

Ratio Analysis

...to compare financial statements of two companies, in the same industry, that are of varied proportions. Financial ratios allow a more simplified calculation of measure to compare these business entities. “Financial ratios are relationships determined from a firm’s financial information and used for comparison purposes” . There are several financial ratio methodologies that are used for interpretation. To name one category, short-term solvencies are calculations that measures a company’s short run, or current assets. “As the name suggests, short-term solvency ratios as a group are intended to provide information about a firm’s liquidity (liquidity measures). The primary concern is the firm’s ability to pay its bills over the short run without due stress” (pg. 57). Some of the short-term solvencies are: Current Ratio, Quick Ratio, and Liquidity Ratios. When a business requires cash quickly, a creditor would be interested in the organization’s current ratio. The current ratio measures the company’s sense of the efficiency in its operating cycle or its ability to turn its product into cash, such as the inventory. “The current ratio is mainly used to give an idea of the company's ability to pay back its liabilities (debt and accounts payable) with its assets (cash, marketable securities, inventory, and accounts receivable). As such, current ratio can be used to take a rough measurement of a company’s financial health. The higher the current ratio, the more capable the...

Words: 678 - Pages: 3

Premium Essay

Mba-Financial Management

...AMBIT RISK MANAGEMENT & COMPLIANCE LIquIdITy RISK – New Lessons and Old Lessons TABLE Of CONTENTS 2 3 12 14 14 14 17 19 Introduction Measuring Liquidity Risk Managing Liquidity Risk Standby Liquidity Reserve Syndication, Sales and Securitization Tactics for Liability Diversification Other Liability Management Tactics Conclusion Liquidity Risk- New Lessons and Old Lessons 2 INTROduCTION The flight to quality that began in 2007 reminded many banks of the importance of liquidity risk management. While maintaining ample liquidity for significant stresses is a costly proposition, there is a balance to be struck between short-term earnings and long-term survival. The crisis also reminded us that liquidity risk is a consequential risk. However, this time, none of the usual suspects such as credit and trading losses triggered the liquidity stresses. Instead, liquidity problems resulted from the belated recognition of risk in mortgagebacked securities which led to a massive flight to quality and, for some banks, the need to fund off-balance sheet commitments. While the initial cause of both problems was excessive exuberance in uS residential mortgage underwriting, problems quickly spread. 3 Liquidity Risk- New Lessons and Old Lessons I. MEASuRING LIquIdITy RISK In today’s complex product market, some banks have far more complex liquidity risks than others. Smaller, conservatively-run banks tend to make......

Words: 7221 - Pages: 29

Premium Essay

Facility Design

...Lec 6: Ch 10 (the role of company directors and other officers and the means by which they are appointed and removed); main focus is on the directors * ‘officer’ and ‘director’ definition- s9, p200 (Morley v ASIC). * ‘director’- a) appointed director regardless of the name given to their position; b) not validly appointed director but acts in position or; c) not validly appointed but the directors of the company are accustomed to act in accordance with the person’s instructions and wishes; person in a) OR b) is de facto director, within c) is a shadow director * Statutory duties, including the duty to act with reasonable care and diligence and the duty to act in the best interests of the company * Statutory requirement for all companies to have at least one director; PTY company must have at least one, with one ordinarily residing in Australia (s201A(1)); public companies must have at least 3, with at least 2 in Aus (s201A(2)) * Directors’ role: manage or supervise the management; for companies that rely on the replaceable rules as their internal governance rules, s198A provides that “the business of a company is to be managed by or under the direction of the directors’” * Company secretary: public companies must have at least one company secretary (s204A(2)) be 18yo and have at least one residing in Aus; PTY company may have one but is not required to appoint one (s204A(1)); secretary is appointed by directors; responsibilities include record-keeping...

Words: 6745 - Pages: 27