Saturday, November 29, 2008


Interest Rate Risk Management.

The traditional method of managing interest rate risk has been fixed -rate borrowing in the form of loans . If is simple , & companies know how much they will need each year to service the debt, However, it is not always possible to obtain a loan at the rates, or for the amounts required.

An enterprise may wish to take precautions against interest rates moving up or down in the future , or many wish to change the existing structure of its funding or deposits , for instance for a fixed rate of interest to a floating rate. With the devolopmentof the financial markets & , in particular , the financial futures markets , a number of instruments have arisen which allow the treasurer to hedge interest rate risk.

Interest Rate Swaps.

An interest rate swap is an exchange of interest rate commitments , serch that a fixed -rate.
Commitment is exchanged for a floating-rate commitment. The parties to a swap retain their obligations to the orginal lenders . Which means that the swap parties must accept counter - party risk.

Interest rate swaps are used for purposes other than obtaining a cheaper financing rate. They could , for example- be used to change future case flows or to enhance returns.

Interest rate swaps are off balance sheet items , as the principal amount of the contract is not paid , & it is just an agreement to swap future cash flows. However, the existece of the swap should be maintained in the notes to the financial statements. The interest payments & receipts should be accrued over the life of the swap on a straight-line basis. Financial institutions which actively trade swaps revalue their positions the current market value.

Forward Rate Agreements.

A forward rate agreement ( FRA) is an agreement whereby an enterprise can lock in an interest rate today for a period of time starting in the future. On the future date the two counter parts in the FRA settleup & , depending on which way rates go , one will pay an amount of money to the other representing the difference between the FRA rate & the actual rate.

Thomas plc has $ 1 m loan outstanding on which the interest rate is reset six months for the following six months. And the interest is payble at the end of that six month period.

The next six monthly reset period may now be just three months away , but the treasurer of Thomas plc thinks that interest rates are likely to rise between now & then. Current six month rates are 8% & the treasurer can get a rate of 8.1% for a six month FRA starting in three months time.

By transactions an FRA the treasurer can lock in a rate today of 8.1%. If interest rates rise as expected to say 9% Thomas plc has reduce its interest charge as it will pay the current 9% rate on its loan but will recive from the FRA counterpart the difference between 9% & 8.1%.

If however rates drop to 7% Thomas plc will still end up paying an effective rate of 8.1% because although the interest rate on the loan is lower , the company will pay the FRA counterpart the difference between 7% & 8.1%.

If rates are 9% in three months time,

Interest payable on the loan 9% x $1 m x 6/12------------------------------------------ 45000
Amount receivable on FRA (9%-8.1%)x$1 m x 6/12------------------------------------ (4500)
net amount ---------------------------------------------------------------------------40500

The 40500$ is the net amount payable , giving an effective rate of 8.1%, If rates are 7% in three months time
Interest payable on the loan 7% x $1m x6/12--------------------------------------------35000
Amount payable on FRA ( 8.1% - 7%) x $ 1m x 6/12--------------------------------------5500
net amount---------------------------------------------------------------------------40500

The $ 40500 is the net amount payble , again giving an effective rate of 8.1%.

Friday, November 28, 2008


Management Of Interest Rate Risk.

Matters To Be Discussed--
  • -Influences on Interest Rates;
  • -Methods of Hedging Interest rate risk;
  • -Illustrating the effect of interest rate risk management techniques such as Swaps,Forward rate agreements,Futures & options.

Interest Rate.
Business wish to reduce their exposure to risk in all its forms & much has been written on this topic, ranging from the identification of different elements of risk ( interest rate,foreign , political) through to this quantification ( portfolio theory & CAPM). There remain ,however ,large areas of uncertainty.
Interest rate risk deals with the possibility of loss arising from a change in the level of interest rates.
As both a borrower & an investor of funds a company is exposed to variations in the interest rate.For example ,if a medium-term loan is taken out at a rate of say 15% ( variable) & interest rates are falling ,the changing interest rates will work to the advantages of the company. Conversely if interest rates were rising , or if the loan was fixed-rate the change would be detrimental to the company.
One important aspect of the treasury function is management of debt in such a way as to reduce the company's exposure to risk resulting interest rate movements.

Term Structure Of Interest Rates.
One of the primary considerations in evaluating debt is the likely movement in interest rates. This will affect the relative costs of long & short-term debt, as well as increasing or decreasing the preference for fixed interest rates. In practice , long-term rates will normally be higher than short-term rates, owing to the additional risk borne by the lender. Hence an interest premium is required to attract investors to longer-term securities.
This effect may be magnified or reversed by investors expectations of future rates, an anticipated rate rise producing higher longer-term rates. This difference between long & short-term rates is known as term structure.
In the general terms ,an increasing term structure results from two factors:
  • Increased risk of longer debt
  • Anticipated genaral interest rate rate rises.
More details analysis is littled required , however, below are listed formal theories as to why interest rates increase with time.

  • Expectations Theory.
This is states that the forward interest rate is due solely to expections of interest rate movement.
If an indidual wishes to borrow for two years, to obvious possibilites present themselves,
- Borrow for two years at an agreed rate,
-Borrow for one year & refinance for the second year ( i.e. pay off the first loan by talking out a second).
In option (a) the interest paid on the loan will be based on the current interest rate & the forward rate for one year. In option (be) the individual will consider the current interest rate & the expected interest rate for year. Thus the choice between the options hinges on whether the forward rate for year two is higher or lower than the expected rate.
From the lenders point of view if the expected rate was higher they would only lend short , preferring to renegotiate at the end of one year & take advantage of the anticipated rate rise. A similar argument could be made if the expected rate was lower than the forward rate, Thus for long -& short - dated dent to coexist, expected future rates & forward rates must be equal. Thus the term structure of interest rates is due purely to investor expectations.
  • Liquidity Preference Theory.
The problem with the expectations theory is that it ignores risk- if the expected rate for year two is the same as the forward rate then & individual needing to borrow for two years would choose a two- year loan since this eliminates the uncertainty of the actual interest rate to be paid in year two. Thus ,borrowers will aim to borrow for the period for which they need funds. If lenders wish only to lend for one year there will be a shortage of long funds & an.

Excess of short funds. This will lead to a premium on forword rates -(i.e.-Lenders will get a bonus for lending for two years & borrowers will have to pay extra if they insist on a two year loan.
In this case the term structure of interest rates would again be upword sloping but now it would be due to the liquidity preference of lenders & borrowers.
  • Market Segmentation.
It has been argued that demand for capital funds in practice can be segmented , particularly on a time basis. Thus , for example- Companies tend to finance stocks with short-term funds & equipment with long term funds. This leads to different factors affecting long- & short - term rates & a lack of a clear trend in the yield curve , characterized by irregularities such as humps & dips.

CONTINUE TO POST 25...................................

Saturday, November 22, 2008


Chartered Accountants work in a number of business and public sector. The role of a Chartered Accountant (CA) varies from a sole practitioner to (CEO) Chief Executive Officer and a CFO (Chief Financial officer). ACA can be associated with services like accountancy, management consultancy, audit, tax, corporate finance, management consultancy, fund management, equity analysis, financial reporting, venture capital etc. The services and role of a Chartered Accountant is of great importance to any company.

The most important role of a Chartered Accountant is to take care of audits which involve checking financial statements and ledgers of the organization. A CA is also responsible for preparing financial statements and doing financial projections. It is their responsibility to develop and manage the financial plans.

The role of a Chartered Accountant is very crucial in case the person is working as a management account as he would be influencing the decisions about capital budgeting and would also be analyzing business. His major responsibilities would include analysis of new contracts, expense efficiency and cost analysis.

In any business, tax matters arises from day to day value added taxes (VAT) to share schemes. A role of a chartered accountant in this scenario is to prepare personal and corporate income tax statements. ACA is supposed to make propose tax strategies which should include acquisition, financial choices and deferral of taxes.

The role of a Chartered Accountant varies in every organization depending upon the nature of the business and added qualification of a CA. According to economists, with the changing economy, the role of a Chartered Accountant would soon be increasing in all organizations


ICWAI (THE INSTITUTE OF COST & WORKS ACCOUNTANTS OF INDIA) is one of the premium institutes of accountancy in India and offers a degree in cost and work accountancy. ICWA is a fairly a new branch but with the increase in competition and economic pressures, the role of ICWA has been growing. A cost accountant can offer his services as a value advisor, trustee, executor or CFO. The role of ICWA is of greater magnitude compared to Charted Accountants or Company Secretary.

The most important role of ICWA is to provide management services. A cost accountant helps in formulating profit planning program and evaluating operational efficiency. An ICWA gives influential advice on product pricing, planning, investment proposals, inventory control, export potential along with marketing and finances. He plays a major role in strategic management of funds, control of operations, analysis of data, budgeting and hence project management.
The role of ICWA is of great importance to any organization as a cost accountant helps in facilitating strategic decisions. He analyses the financial reports considering factors like labor, transport, cost of raw material, overheads etc. He helps the organization in making proper budget and hence helps the company in correct planning for their success.
The role of ICWA is very crucial for an organization as he is the master mind behind the financial operations of the company. He collects, assimilates, collate and thus analyze the financial information in the organization Due to economic linearization, there is a steep increase in appreciation for significant role played by an ICWA.

Thursday, November 20, 2008


Short -Term Investments.

Companies & other organisations sometimes have a surplus of cash & become "cash rich".A cash surplus is likely to be temporary, but while it exists the company should seek to obtain a good return by investing or depositing the cash, without the risk of a capital loss ( or at least ,without the risk of an excessive capital loss).

Three possible reasons for a cash surplus are:
  1. Profitability from trading operations;
  2. Low capital expenditure, perhaps because of an absence of profitable new investment opportunities;
  3. Receipts from selling parts of the business.
The board of directors might keep the surplus in liquid form:
  • To benifit from high interest rates that might be available from bank deposits , when returns on re-investment in the company appear to be lower;
  • To have cash available should a strategic oppertunity arise perhaps for the takeover of another company for which a cash consideration might be needed;
  • To buy back shares from shareholders in future;
  • To pay an increased dividend to shareholders.

Short Term Investments.
Temporary cash surplus are likely to be:
  • Deposited with a bank similar financial institution;
  • Invested in short term debt instruments. Debt instruments are debt securities which can be traded;
  • Invested in longer term debt instruments, which can be sold on the stock market when the company eventually needs the cash;
  • Invested in shares of listed companies , which can be sold on the stock market when the company eventually needs the cash.

Friday, November 14, 2008


The Need For Cash Management.

How much cash should a company keep on hand or "on short call" at a bank? the more cash which is on hand, the easier it will be for the company to meet its bills as they foll due and to take adventage of discounts. however, holding cash or near equivalents to cahs has a cost in terms of the loss of earning which otherwise have been obtained by using the funds in another way. The finacial manager must try of balance liquidity with profitability.
we have already introduced the operating cycle, which connects invest ment in working capital with cash flows. cash flow problems can arise in several ways.

  • Making losses.-If a business is continually making losses,it will eventually have cash flow problums.Just how long it will take before a loss-making business runs in to cash flow trouble will depend on. (1). How big the losses are;& (2). Whether depreciation charge is big enough to create a loss dispeite a cash flow surplus.In such a situation, the cash flow troubles might only begin when the business needs to replace fixed assets.
  • Inflation.-In a period of inflation, a business needs ever increasing amounts of cash just to replace used-up & worn-out assets. A business can be making a profit in historical cost accounting terms,but still not be receiving enough cash to by the replacement assets it needs.
  • Growth.-When a business is growing , it needs to acquire, & to support higher amounts of stocks & debtors. These addition assets must be paid for somehow ( or financed by creditors).
  • Seasonlal Business.-When a business seasonal or cyclical sales , it may have cash flow difficulties at certain times of the year, when (1). Cash inflows are low but (2). Cash out flows are high, perhaps because the business is building up its stocks for the next period of high sales.
  • One-off Items of expenditure.-The made might occasionally be a single the non-recurring item of expenditure that corrects a cash flow problum, such as (1). The repayment of loan capital on maturity of the debt.Business often try to finance such long repayments by borrowing again. (2). The purchase of an exceptionally expensive item. For example -A small or medium -sized business maght decide to buy a free hold property which then stretches its cash resources for several months or even years.
Methods Of Easing Cash Shortages.
The steps that usually taken by a company when a need for cash arises & when it cannot obtain resources from any other source such as a loan or an increased overdraft are as follows.
  • Postponing capital expenditure.-It might be imprudent to postpone expenditure on fixed assets which are needed for the development growth of the business.On the other hand , some capital expenditures are routine & might be postponable without serious consequences.The routine replacement of motor vehicles is an example.If a company's policy is to replace company cars every two years ,but the company is facing a cash shortage ,it might decide to replace cares every three years.

  • Accelerating cash inflows which would otherwise be expected in a later period.-The most obvious way of bringing forward cash inflows would be to press debtors for earlier payment.Often , this policy will result in a loss of goodwill & problems with customers. There will also be very little scope for speeding up payments when the credit period currently allowed to debtors is no more than the norm for the industry. It might be possible to encourage debtors to pay more quickly by offering discounts for earlier payment.

  • Reversing past investment decisions by selling assets previously acquired.-Some assets are less crucial to a business than others & so if cash flow problem are serve, the option of selling investments or property might have to be considered.
  • Negotiating a reduction in cash outflows so as to postpone or even reduce payments.-There are several ways in which this could be done,
Longer credit might be taken from suppliers.However , if the credit period allowed is already generous, creditors might be very reluctant to extend credit even further & any such extension of credit would have to be negotiated carefully.There would be a serious risk of having further supplies refused.
  1. Loan replacements could be rescheduled by agreement with a bank.
  2. A diferral of the payment of corporation tax could be agreed with the inland revenue.Corporation tax is payble nine months after a company's year end.but it might be possible to arrange a postponement by a few months. When this happens , the inland revenue will charge interest on the outstanding amount of tax.
  3. Dividend payments could be reduced.Dividend payments are discretionary cash outflows , although a company's directors might be constrained by shareholders expectations , so that they feel obliged to pay dividend even when there is a cash shortage.

The Miller-ORR Model.
In an attempt to produce a more realistic approach to cash management,various models more complicated than the inventory approach have been developed.One of these the Miller-ORR model manages to achive a reasonable degree of realism while not being too elaborate.

Advantages & Disadvantages of the Miller-ORR Model.
The usefullness of the Miller-ORR model is limited by the assumptions on which it is based. In practice cash flows & outflows are unlikely to be entirely unpredictable as the model assumes: For example: For a retailer, seasonal factors are likely to affect cash inflows for any company , dividend & tax payments will in advance. However ,the miller-ORR model may save management time which might otherwise be spent in responding to those cash inflows & outflows which cannot be predicted.

Monday, November 10, 2008


The Management Stocks.

Almost every company carries stocks of some sort,even if they are only stocks of consumables such as stationery.For a manufacturing business,stocks ( sometimes called inventories),in the form of raw materials, working progress & finished goods,may amount to a substsntial proportion of the total assets of the business.
Some business attempt to control stocks on a scientific basis by balancing the costs of stock shortages against those of stock holding.

The "scientific"control of stock may be analyzed into parts;
  • The economic order quantity ( EOQ ) model can be used to decide the optimum order size for stocks which will minimize the costs of ordering stocks plus stock holding costs.
  • If discounts for bulk purchases are available , it may be cheaper to buy stocks in large order size so as to abtain the discounts.

  • Uncertainty in the demand for stocks & /or the supply lead time may lead a company to decide to hold buffer stocks ( there are by increasing its investment in working capital ) in order to reduce or eleminate the risk of stock-outs ( running out of stock ).

Stock Costs.
Stock costs can be conveniently classified into four (4) groups;
  1. Holding costs.
  2. Procuring costs.
  3. Shorage costs.
  4. The cost of the stock itself.

Stock Models.
There are several types of stock model & these can be clissified under the following headings
  • Deterministic Stock Model.
  • Stochastic Stock Models.
A deterministic stock model is one which all the "parameters"are known with certaily.In particular the rate of demand & the supply lead time are known.
A Stochastic model is one in which the supply lead time or the rate of demand for an item is not known with certainly.However, the demand or the lead time follows a known probability distribution ( porbably constructed form a historical analysis of demand or lead time in past ).


The Management of Creditors & Short Term Finance.
The management of creditors involves:
  • Attempting to obtain satisfactory credit from suppliers.
  • Attempting to ectend credit during periods of cash shortage.
  • Maintaining good relations with regular & important suppliers.
If a supplier offers a discount for the early payment of debts,the evaluation of the decision whether or not to accept the discount is similar to the evaluation of the decision whether or not to offer a discount one problum is the mirror image of the other.The methods of evaluation the offer of a discount to customers were described earlier.
Sources Of Short-Term Finance.
Taking trade credit from suppliers is one way in which a company can obtain some short-term finance. In addition to its longer term sources.Short-term finance can also be obtained:
  • With a bank overdraft.
  • By raising finance from a bank or other organization the security of trade debtors.For example : through factoring or invoice discounting ( both discribed earlier in this post).
  • For larger companies by issuing short-term debt instruments,such as commercial paper.

Friday, November 7, 2008


Factoring is a services that does not have a concise difinition.A factor us a doer or transactor of business for another but a factoring organization specializes in trade bedts & managers the debts owed to a client ( a business coustomer) on the client's behalf.
The main aspects of factoring are
  • Administration for the clients invoicing,sales,accounting & debt collection service;
  • Credit protection for the clients debts,where are by the factor takes over the risk of loss from bad debts & so "insures" the client against serch losses.This servise is also referred to us debt" underwriting"or the "purchase of a clients debts" the factor usually purchase those debts "whithout recourse" to the clients,which means that if the clients debtors do not pay what they owe,the factor will not us for his money back from client.
  • Making payments to the client in advance of collecting the debts. This is sometimes refferred to us "factor finance" because the factor is providing cash to the client against outstanding debts.
The Advantages of Factoring.
The benifits of factoring for a business customer include the follwing,
  • The buniness can pay its suppliers promptly, & so be able to take advantage of any early payments discounts that are available.
  • Optimum stock levels be maintained, because the business will have enough cash to pay for the stocks is needs.
  • Growth can be financial through sales rather than by injecting fresh external capital.
  • The business gets finance linked to its volume of sales.In contracts overdraft limits tend to be determine by historical balance sheets.
  • The managers of the business do not have to spend their time on the problems of slow paying debtors.
  • The business does not incur the cost of running its own sales ledger department.
Factoring and Bank Finance.
If a company arranges with a factor for advances to be made against its debts, the debts will become the security for the advance. If the some company already has a bank overdraft facility, the bank may be relying on the debts as form of security (perhaps not legal security,in the form of a ploating charge over stocks & debtors, but as an element in the decision about how much overdraft to allow the company) the bank may therefore wish to reduce the companies overdraft limit.
Invoice Discounting.
Invoice discounting is related to factoring & many factors will provied an invoice discounting service.It is the purchase of a selections of invoices, at a discount.The invoice discount does not take over the administration of the clients sales ledger, & the arrangement is purely for the advance of cash. A client should only want to have some invoices discounted when he has a temporary cash shortage & so invoice discounting tends to consist of one-off deals.
Confidential invoice discounting is an arrangement whereby a debt is confidencially assigned to the factor, & the clients customer will only because oware of the arrangement if he does not pay his debt to the client.

Thursday, November 6, 2008


The Management Of Debtors.
Several factors shoud be considered by management when a policy for credit control is formulate these include:
  • The administration costs of debt collection
  • The procedures for controlling credit to individual customers & for debt collection
  • The amount of extra capital required to finance & extension of total credit.There are might be an increase in debtors,stock & creditors & the net increase in working capital must be financed
  • The cost of the additional finance required for any increased in the volume of debtors(or the saving from a reduction in debtors).This cost might be bank overdraft interest,or the cost of long term founds(serch as loal stock or equity)
  • Any savings or additional finance required for any increased in the volume of debtors (or the saving from a reduction in debtors) this cost might be bank overdraft interest or the cost of long term funds (serch us long stock or equity)
  • Any savings or additional expenses in operating the credit policy (for example: The extra work involved in pursuing slow payers)
  • The ways in which the credit policy could be implemented.For example ( 1)Credit could be eased by giving debtors a longer period in which to settle their accounts.The cost would be the resulting increase in debtors. (2)A discount could be offered for early payment.The cost would be the amount of the discount taken.
  • The effects of easing credit which might be (1) To encourage a higher proportion of bad debts. (2)An increase in sales volume.
Provided that the extra gross contribution from the incease in sales exceeds the increase in fixed cost expences.Bad debts discounts & the finance cost of an increase on working capital a policy torelax credit terms would be profitable.
Some of those factors involved incredit policy decitions will now be considererd in more detail.
The Debt Collection Policy.
The overall debt collections policy of the firm should be serch that the administrative costs & other costs incurred in debt collection do not exceed the benefits from incurring those costs.
Some extra spending on debt collection procedures might
  1. Reduce bad debt losses
  2. Reduce the average collections period, & therefore the cost of the investment in debtors.
Beyond a certain level of spending, however , addtional expenditurs of debt collection would not have enough effect on bad debts or on the average collection period to justify the extra administrative costs.
Debt Collection Procedures.
The three main areas which ought to be considered in connection with the control of debtors are;
  1. Paperwork .
  2. Debt collection.
  3. Credit control.
Sales paperwork should be dealt with promptly & accurately.
  • Invoices should be sentout immediately after delivery
  • Cheques should be carried out to ensure that invoices are accurate
  • The investing of queries & complaints & if appropriate,the issue of credit notes should be carried out promptly.
  • If pratical,monthly statement should be issued early so that old items on the statement might then be included in customers monthly settlements of bills.
Total Credit.
To determine whether it would be profitable to extend the level of total credit,it is necessary to assess;
  • The extra sales that a more generous credit policy would stimulate
  • The profitability of the extra sales
  • The extra length of the average debt collections period
  • The required rate of return on the investment in additional debtors.
Discount policies.
Varying the discount allowed for early payment of debt
  • Affects the average collection period
  • Affects the volume of demand (and possibly, therefore, indirectly affects bad debt losses)
To see whether the offer of a discount for early payment is financially worthwhile we must compare the cost of the discount with the benifit of a reduced investment in debtors.
Bad Debt Risk.
Different credit policies likely to have differing levels of bad debt risk.The higher turnover resulting from easier credit terms should be sufficiently profitable to exceed the cost of:
  • Bad debts ;&
  • The additional investment necessary to achieve the higher sales.

Monday, November 3, 2008


Working Capital Management.

What is working Capital ?

The working capital of a business can be define as its current assets less its current liabilities.Current assets comprise cash , stocks of raw materials , work in progress & finished goods , marketable securities such as Treasury bills & amounts receivable from from debtors Current liabilities comprise creditors falling due within one year ,& may include amounts owned to trade creditors ,taxation payable, divident payments due , short term loans , long term debts maturing within one year & so on.

Every business needs adequate liquid resources to maintain day to day cash flow.It needs enough to pay wages & salaries as they fall due & enough to pay creditors if it is to keep its workforce & ensure its supplies.Maintaining adequate working working capital is not just important in the short term.Sufficient liquidity must be maintain in order to ensure the survival of the business in the long term as well.Even a profitable company may fail if it does not have adequate cash flow to meet its liabilities as they fall due.

What is Working Capital Management ?

Ensure that sufficient liquid resources are maintained is a matter of working capital capital management.This involves achieving a balance between the requirement to minimize the risk of insolvency and the requirment to maximize the return on assets .An excessively conservative approach to working capital management resulting in high levels of cash holding will harm profits because the opportunity to make a return on the assets tide up as cash will have been missed.

The volume of Current Assets Required.

The volume of current assets reqired will depend on the nature of the company business.

For example , Amanufacturing company may requir more stocks than company in a service industry.As the volume of output by a company increases ,the volume of current assets required will also increase.

Even assuming efficient stock holdings,debt collection procedures & cash management,there is still a certain degree of choice in the total volume of current assets required to meet output requirement.Policies of low stock-holding levels ,tight credit & minimum cash holding may be contrasted with policies of high stock (To allow for safety or buffer stocks) easier credit & sizeable cash holding (For precautionary reasons).

Over-Capitalization & Working Capital.

If there are excessive stocks debtors & cash & very few creditors there will an over investment by the company in current assets.Working capital will be excessive & the company will be in this respect over-capitalized.The return on the investment will be lower than it shoud be,& long term funds will be unnecessarily tide up when they could be invested elsewhere to earn profits.
Over capitalization with respect to working capital shoud not exist if there is good management but the warning since excessive working capital be poor accounting ratios.The ratio which can assist in judging whether the investment in working capital is reasonable include the following.
  • sales /working capital. The volume of sales as a multiple of the working capital investment shoud indicate weather,in comparison with previous year or with similler companies,the total volue of working capital is too high.
  • Liquidity ratios. A current ratio in excess of 2:1 or a quick ratio in in excess of 1:1 may indicate over-investment in working capital.
  • Turnover periods. Excessive turnover periods for stocks & debtors,or a short period of credit taken from supplies,might indicate that the volume of stocks of debtors is unnecessarily high or the volume of creditors too low.