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Revenue Growthand
Cash Management
What is the Cash Gap?
• Collection Period
• Payables Period
• Inventory Days
Cash Gap Computation
• Days in inventory + collection period - days in payables
• Inventory management improves cash gap
Cash Gap CalculationsDollar General Wal Mart Int'l Paper WeyerhaeyserThousands Millions Millions Millions
Sales 2,627,325$ 117,958$ 19,541$ 10,766$ Receivables - 976 2,469 978 Cost of sales 1,885,190 93,438 14,761 8,484 Inventory 631,954 16,497 2,719 962 Payables 179,958 9,126 1,525 699
Analyses
Days in receivables - 3 46 33 Days in inventory 122 64 67 41 Days in payables 35 36 38 30
Dollar General Wal Mart Int'l Paper Weyerhaeyser
Average daily amount financed 5,165$ 256$ 40$ 23$ Average daily cost of cash gap 362 18 3 2 Interest rate 7% 7% 7% 7%
Comparison to Competitors
122 days
Days in Inventory
35 days Cash Gap: 88 days
Payable days
Days in Inventory
36 days
Payable days
DollarGeneral
64 days
Cash Gap: 32 days
Collection Period: 3 days
Wal Mart
Sales Growth and Cash Gap
• Short gap allows high growth
• Long gap causes company to grow out of cash
• Margin and cash gap
0
1,000
2,000
3,000
4,000
5,000
6,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collections and ExpenseThirty Day Cash Gap
0
1,000
2,000
3,000
4,000
5,000
6,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap
0
1,000
2,000
3,000
4,000
5,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collections and ExpenseNinety Day Cash Gap
0
1,000
2,000
3,000
4,000
5,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and Expense120 Day Cash Gap
(2,000)
(1,500)
(1,000)
(500)
0
500
1,000
Net C
ash
Flo
ws (T
ho
usan
ds)
0% 10% 20% 30% 40% 50%Monthly Sales Growth Rate
Cash Flows and Sales Growth30 Day Payment and 75 Day Collection
50%
40%
30%
20%
10%
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--10% Growth
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--11% Growth
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--12% Growth
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--13% Growth
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
Dollar A
mount
1 2 3 4 5 6 7 8 91011121314151617181920Month
Monthly Cash Collected and ExpenseSixty Day Cash Gap--14% Growth
Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
Cash Gap
Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
New Cash Gap
Cash Shortage
Old Cash Gap
Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
Old Cash Gap New Cash Gap
Cash Surplus
Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
Slower Sales Growth
Cash Gap
Cash Surplus
Time
Dol
lar
Am
oun
tsCash Gap and Margin
Revenue
Expense
Lower Margin
Cash Gap
Cash Shortage
Former Revenue
Cash Gap and Fluctuating Sales
• Sales Variation
• Size of Cash Gap
• Cash Flow Variability
(30,000)
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
50,000
Dollar A
mount
0 10 20 30 40 50 Month
Fluctuating Sales and Expenses
Revenue
Expense
(30,000)
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
50,000
Dollar A
mount
0 10 20 30 40 50 Month
Fluctuating Sales and Expenses
Revenue
Expense
(30,000)(20,000)(10,000)
0 10,000 20,000 30,000 40,000 50,000
Dollar A
mount
0 10 20 30 40 50 Month
Net Cash FlowCash Gaps from 30 to 120 Days
