You have been engaged by a new client, Tough Tradies Ltd (TTL), to assist with their cash and liquidity management. TTL is a well-respected clothing manufacturer that specialises in safety garments for tradesmen. The business has high turnover of inventory over a 60-day period. It offers accounts receivable terms for corporate clients on a 14-day payment basis (which accounts for 70% of its sales) but must make all payments on its inventory cloth purchases within 28 days of purchase.

In addition, TTL is currently considering a proposal to enter into a joint venture with an international group that will expand its operations to over a dozen countries. One implication of the proposed international joint venture is that TTL will require multiple international bank accounts to manage foreign currency payments and receipts.

As TTL currently does not have a cash management strategy, it relies heavily on a revolving line of credit to assist with its liquidity management. It typically invests surplus cash in term deposits up to a maximum of 90 days. The newly appointed treasurer is aware that the current system in not efficient and your mandate is to advise TTL on the following matters:

1. Explain how TTL can use a Cash Flow Gap analysis to identify and manage any exposures it may face both now and in the future when it expands internationally.
2. Identify and explain three reasons why TTL should consider the option of meeting Net Funding Requirements using international, rather than domestic, markets.

Answer rating: 100% (QA)

1 TTL can use a Cash Flow Gap analysis to identify and manage any exposures it may face both now and ... View the full answer