Working capital credits

Businesses require funds for day-to-day operations ( working capital ) and for expansion by acquisition and for the provision of plant and machinery, buildings, etc. Most working capital needs are normally (and should be) met from the company s own cash generated from its own operations. Indeed, the need to meet this criterion serves as a discipline upon the company s standard of cash management in relation to credit control, payment of suppliers, etc. 

The EVA [10,11] combines information from the profit and loss statement (revenue, costs, earnings before interests and taxes (EBIT), etc.) and the financial sheet (net working capital (NWC), assets, etc.). The EVA is the interest calculation in absolute measurements and strongly related to the return on capital employed (ROCE) where the gained interest rate is calculated (Figure 1.7). In the long term, this interest rate should be above the capital costs of the company which is the interest rate the company has to pay for a credit on the capital market. Hence, a positive EVA means that the company has earned some money above the capital costs. 

A. Sources and uses of funds equity, bond, loan, credit land, equipment, raw material inventory, product inventory, working capital... 

Capital cost = reactor + catalyst + furnace + heat exchangers + compressor Operating cost = furnace energy cost + compressor work — steam credit... 

Modem balance sheets often use the general term liabilities in place of equities. Current liabilities are grouped together and include all liabilities such as accounts payable, debts, and tax accruals due within 12 months of the balance-sheet date. The net working capital of a company can be obtained directly from the balance sheet as the difference between current assets and current liabilities. Other liabilities, such as long-term debts, deferred credits, and reserves are listed under separate headings. Proprietorship, stockholders equity, or capital stock and surplus complete the record on the equity (or liability) side of the balance sheet. 

The raw-materials inventory included in working capital usually amounts to a 1-month supply of the raw materials valued at delivered prices. Finished products in stock and semifinished products have a value approximately equal to the total manufacturing cost for 1 month s production. Because credit terms extended to customers are usually based on an allowable 30-day payment period, the working capital required for accounts receivable ordinarily amounts to the production cost for 1 month of operation. 

Servicing the working capital depends on the credit value and its type, as well as on the interest rate. It is reasonable to assume the credit to be equal to the variable cost of a drying process. In developed countries the interest charges on the working capital can be estimated as 4%-7% of the annual credit, but it is strongly recommended to consider local conditions. 

Finally, when calculating the cash flow for the last year of operation, it is common to take credit for the working capital investment. Some companies also take credit for a projection of the salvage value of the plant, assuming that it is dismantled and sold at the end of its useful life. Because salvage values are difficult to estimate, and in some cases distort the NPV and IRR, many companies prefer to be conservative and assume a zero salvage value. 

Ex-factory price Loading/unloading costs Working capital storage costs Dealers fees (margins) Transportation costs Interest rate on farm credit Distribution losses Advertising... 

Estimates of working capital requirements fall Into four cireas inventories, accounts receivable, cash in hand, and current liabilities. To estimate these, it is necessary to consider the different production stages in which materials can be found, wdiich are (1) raw materials paid for but not received (a portion of current assets) (2) raw materials on hand but not paid for (a portion of current liabilities) (3) materials in process (4) finished products in store whether on-site orpff-site and (5) finished prod-ucts delivered to customers but not yet paid for (accounts receivable). The calculation of the amounts of each of these material inventories depends on such factors as distance from raw material suppliers, types of contracts for raw material purchases, raw material purchase fh nancing methods, quantity discounts and lot sizes available for raw materials, available modes of transportSition, cost of storage facilities, plant size and capacity, seasonality of sales volumes, marketing system, and customer credit policies. 

In general terms, the initial fixed capital investment and the minimum net working capital are covered by a mix of equity and long-term loans and additional net working capital from short- and medium-term loans or from positive net cash flow (equity). Within this structure, various combinations and permutations need to be considered related to cost of finance, financial flexibility, debt service, and taxation. Consideration should also be given to leasing, supplier credits, and other sources of finance. In all cases, a balance has to be struck between equity and debt finance. 

Contributions to the Regular Budget Fund and advances to the Working Capital Fund shall be credited to the debtor accormt of a particular State Party on the date when the OPCW receives a cheque from the State Party concerned or, in the case of transfers, when the OPC W s bank account receives credits for these funds. Bank charges applied by the paying bank shall be borne by the State Party concerned. 

A Working Capital Fund shall be established in an amount and for the purposes to be determined from time to time by the Conference of the States Parties. It should not exceed two-twelfths of the budget provision for that financial period, subject to the provisions of Regulation 6.5. The Working Capital Fund shall be funded by advances from States Parties made in accordance with the scale of assessments as determined by the Conference of the States Parties for the apportionment of the OPCW s approved budget. Advances shall be carried to the credit of the States Parties which make them. 

Income derived from Working Capital Fund investments shall be credited to miscellaneous... 

Trade credit and working capital the view from the firms... 

A man wishes to borrow 2,400 so he can buy a new car. He can get a bank loan for which he would be required to pay 7% interest on the initial loan. The payments would be in equal monthly installments over a period of one year. He could also get a loan from the credit union where he works. The terms are that each month he would pay 200 to reduce the capital borrowed and 1% interest on the unpaid balance. What is the total interest paid for each loan ... 

The problem of exploitation by taxation is discussed in 4.1.5. One should note that exploitation of the peasants through mortgages, while in one sense equivalent to the exploitation of wage labour, elsewhere in the same work is called one of "capital s secondary modes of exploitation", presumably because it is dissociated from the dynamic core of the capitalist mode of production. "Usurer s capital... paralyses the productive forces instead of developing them." In Capital III Marx extends the term "secondary exploitation" to cover credit for consumption purposes as... 

Simple commodity production is a more fragile structure. As explained in 4.1.3, with unequal endowment of resources this system would involve exploitation without class formation, thus showing the logical separability of these two phenomena. Marx argued that in actual cases a society based on simple commodity production would soon develop a credit market or a labour market, thus transforming it into capitalism or one of the transitional forms discussed below. Whereas formerly all worked for themselves with their own capital, there now emerge buyers... 

Feldstein MS (1978) The effect of unemployment insurance on temporary layoff unemployment. American Economic Review 68(6) 834—846 Friedman M (1962) Capitalism and freedom. University of Chicago Press, Chicago GAO (2001) Work opportunity tax credit employers do not appear to dismiss employees to increase tax credits. Report Number GAO-Ol-329. General Accounting Office, Washington, DC... 

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