tailieunhanh - Lecture Multinational financial management: Lecture 27 - Dr. Umara Noreen

After completing this chapter, students will be able to: To explain the difference in analyzing cash flows from a subsidiary perspective versus a parent perspective; to explain the various techniques used to optimize cash flows; to explain common complications in optimizing cash flows; and to explain the potential benefits and risks of foreign investments. | International Cash Management 27 Lecture Chapter Objectives To explain the difference in analyzing cash flows from a subsidiary perspective versus a parent perspective; To explain the various techniques used to optimize cash flows; To explain common complications in optimizing cash flows; and To explain the potential benefits and risks of foreign investments. Cash Flow Analysis: Subsidiary Perspective The management of working capital has a direct influence on the amount and timing of cash flow. Subsidiary expenses – It is difficult to forecast the payments for international purchases of raw materials or supplies because of exchange rate fluctuations, quotas, sales volume volatility, etc. Subsidiary revenue – International sales may be more volatile than domestic sales because of exchange rate fluctuations, business cycles, etc. Subsidiary dividend payments – If the payments and fees (royalties, overhead charges) for the parent are known and denominated in the subsidiary’s currency, . | International Cash Management 27 Lecture Chapter Objectives To explain the difference in analyzing cash flows from a subsidiary perspective versus a parent perspective; To explain the various techniques used to optimize cash flows; To explain common complications in optimizing cash flows; and To explain the potential benefits and risks of foreign investments. Cash Flow Analysis: Subsidiary Perspective The management of working capital has a direct influence on the amount and timing of cash flow. Subsidiary expenses – It is difficult to forecast the payments for international purchases of raw materials or supplies because of exchange rate fluctuations, quotas, sales volume volatility, etc. Subsidiary revenue – International sales may be more volatile than domestic sales because of exchange rate fluctuations, business cycles, etc. Subsidiary dividend payments – If the payments and fees (royalties, overhead charges) for the parent are known and denominated in the subsidiary’s currency, forecasting cash flows will be easier. Cash Flow Analysis: Subsidiary Perspective Subsidiary Liquidity Management After accounting for all cash outflows and inflows, the subsidiary must either invest its excess cash or borrow to cover its cash deficiencies. If the subsidiary has access to lines of credit and overdraft facilities, it may maintain adequate liquidity without substantial cash balances. Cash Flow Analysis: Subsidiary Perspective Centralized Cash Management While each subsidiary is managing its own working capital, a centralized cash management group is needed to monitor, and possibly manage, the parent-subsidiary and intersubsidiary cash flows. International cash management can be segmented into two functions: optimizing cash flow movements, and investing excess cash. Cash Flow of the Overall MNC Fees & Earnings Excess Cash Fees & Earnings Excess Cash Interest &/or Principal Loans or Investment Interest &/or Principal Loans or Investment Subsidiary Subsidiary Funds for .