Лекция: Inflation and Working Capital Management
Finding the optimal level of inventory in an hyperinflationary environment is not always easy, since conflicting situations may exist. The idea of redacting inventories to improve liquidity and lower financing costs is sound. The company with a rapid turnover is in a better position because less investment in inventory is requires. Funds can therefore be alternatively invested. Of course, a film with a minimum inventory dependence is in the most advantageous position during inflationary times. It is also better if it owns saleable goods because cash flow may immediately be generated. Secondly, one of the quickest methods of increasing the return of capital is to reduce the amount of capital invested in the business. However there are another important factors that may influence the inventory decision.
We have already mentioned the case of a company that would be well advised to build up inventory prior to anticipated inflation after appraising supply/demand relationships, manufacturing cost, financing costs, and cash needs, When such circumstances do not exist, we must be aware that liquidity is important provided itcan be used for some worthy cause. Otherwise it subject to the monetary erosion while the Inventory is not. It is therefore preferable to be rich in inventories than in cash.
The means trough which the reduction in turnover is achieved should also be considered. Redacting inventory through discounts offered in an attempt to win customers can be harmful. Increased discounts offered to a market declining in consumption must be paid for out of net profits. At the same time as company profits decrease, borrowing increases and die cost of borrowing depresses profits further. Finally me firms should try to pursue any possible method to reduce the inventory cost. The company should try cat costs by finding cheaper ways of doing things. The incidence of scrap and salvage should be minimised. In addition, poor product lines should be cancelled. To be especially avoided are components that traditionally experience excessive price increases, With respect to the purchase of materials the following factors should be taken in consideration.
To minimise cost increases, the firm should enter long-term contract agreements and encourage suppliers to quote firm prices A change in suppliers may be warranted if one allows for more liberal credit and grants easier credit terms. When available, contracts in die futures market may be entered into when inflation is expected to get worse. The firm may lock itself into buying a raw material at a stated price that is lower man the anticipated future price.
Good relationship with vendors should be developed to assure adequate flow of components and supplies during a shortage period.
The following factors should be taken into considering investment projects.
To protect itself against rapid inflation, the firm should stay out of investments in vulnerable areas of nonessential items. Luxury long-term investment proposals should be temporarily scrapped if higher costs occur and the firm has a weak funds-flow position and/or credit is tight.
On the other hand, low investments opportunities such as obtaining licenses for new developments or granting licenses for the finn's products to others should be pursued. Because high rates of inflation affect projects requiring short-lived assets more than those requiring long-lived ones, it would be beneficial to shift towards high-quality machinery, with a longer life or to stretch replacement intervals.
An attempt should be made to divide projects into self-contained economic units so that success is not dependent upon the completion of the whole projects. This flexibility may help in controlling costs.
It would probably be best for the company to avoid investing m projects with long lead times because the impact of inflation on these items is difficult to control. Perhaps risks can be minimised through joint ventures.
A company in a technologically oriented industry that does not keep up to date wit! be incurring higher operational costs in maintaining equipment. Production stoppages will result and, in a later period the higher replacement cost for property, plant, and equipment may place a serve cash drain on the firm.
A capital-intensive business is quite vulnerable to inflation because of the high costs and availability problems of replacing heavy machinery. Once the projects is started, construction should continue regardless of the point in the business cycle. Delay will only cause higher capital, shutdown, and start up costs and lower productivity.
During inflation a company's greatest need is for its assets to be flexible. Specially designed and produced machinery which cannot be resold puts a company in a very high risk situation if there is a turndown in the market. It would be far better to have disposable assets which can be traded if necessary, such as land, non tailor made buildings, standard machinery. Even cash is better than a long-term fixed assets in time of trouble It may be wasting away, but at least it can easily be pushed into something more profitable.
Leasing instead of buying machines, making use of outside suppliers instead of internal services, all these provide a greater flexibility and enable a company to concentrate its affairs upon the activities which it dies well and which make company profit.
It is critically important for a company to recognize which if its activities and of its assets are highly productive and which are not. Those activities and assets which are not fully productive should be eliminated. The resultant surplus energy concentrated on highly productive areas of the «business will produce profits in excess of any earnings which might have been made from the marginal activities.
//. Определите значение следующих слов и словосочетаний без помощи словаря.
to invest money
— inventory
to depress
— liquidity
to minimise risks
— to generate
business cycle
corporate funds
— to control the impact
monetary erosion
— vertical integration
— standard machinery.
III. Найдите английские эквиваленты следующих словосочетаний.
— приносить прибыль
— закупать сырье по фиксированной цене
— уязвимый к инфляции
гарантировать стабильные поставки
предоставить лицензию
— нести убытки
— брать в аренду
быстрый товарооборот
снижение потребления.
IV. Назовите все глагольные формы (личные и неличные) и объясните их роль в предложении.
Leasing instead of buying machines, making use of outside suppliers instead of internal services, all these provide a greater flexibility and enable a company to concentrate its affairs upon the activities which it dies weu and which make company profit.
V. Дайте адекватный перевод текста на русский язык..
VI. Найдите в тексте случаи использования страдательного залога (Passive Voice) в сочетании с модальными глаголами и дайте их адекватный перевод на русский язык.
Образец; „In addition, poor product lines should be cancelled“, „Кроме того, слабые производственные линии следует отменить“.
VII. Ответьте на вопросы:
1. In what way should a company ran its business during the time of hyperinflation?
2. How must the cash flow be handled?
3. What measure must be taken in respect with raw materials?
4. Is it reasonable to make long-term contracts?
5. „Why is it so important for the business to be flexible?
6. What other precautions can help the company to survive?
VIII. Объясните заголовок текста.
IX. Объясните значение следующих терминов:
— steady supply
— assets
— leased property
— joint venture
liquidity
cash drain
— marginal activities
— futures market
— supply / demand relationships
— inflationary environment.
X. Перечислите все меры, которые компания должна принимать во время гиперинфляции.
Прочитайте тексты и выполните задания
FOREIGN TRADE OF THE UNITED KINGDOM
In thel9th century Britain dominated international trade, accounting for about one-third of world's exports. Early in the 20th century its position changed. The volume of world's exports increased but the percentage of British exports in world trade declined significantly.
But still foreign trade is vital to Britain's livelihood. With a large population, small land area, and few natural resources, the country must depend on foreign trade to supply the raw materials for English factories and to provide a market for the sale of the thousands of types of manufactured goods produced by English industries.
The United Kingdom's principal exports are vehicles, machinery, manufactured goods and textiles. Her mam exports are foodstuffs and most of the raw materials for industry. Britain imports half the food it needs.
There is usually an unfavorable balance of trade, that is, imports exceed exports, but this is compensated for in part by the so-called invisible trade.
The earnings from invisible trade come in the way of shipping charges, interest payments from foreign investments, interest payments from British enterprises abroad, and tourist expenditure. The earnings from foreign tourist trade make this one of Britain's important industries.
Britain has got very sound economic ties with various countries of the world, especially the Commonwealth countries. The Commonwealth, officially called The Commonwealth of Nations, has grown out of the old British Empire which came to an end with the Second world war. The Commonwealth countries are Canada, Australia, New Zealand and many other small countries and territories.
The United Kingdom has been a member of the European Free Trade Association (E.F.T.A.) since 1959, and a member of the European Economic Community (E.E.C.) since 1973.
I. Найдите ответы в тексте;
1. What goods docs Britain export?
2. What goods does the United Kingdom import?
3. What services does the country export?
4. Does the country earn a lot of money thanks to a big number of tourists coming to Britain?
5. What is The Commonwealth?
6. Is Britain closely connected with Commonwealth countries?
7. Is the United Kingdom a member of the European Free Trade Association?
8. When did Britain join the European Economic Community?
//. Найдите, что говорится в тексте о:
Britain's visible imports, its visible and invisible exports, its ties with the Commonwealth countries, its membership in European economic organizations.