​03 Funding and Trade Financing

Managing liquidity serves ultimately two purposes:

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• Optimize the cost / benefit for placing liquidity;  

• Keep the working capital afloat.

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For these two objectives, corporates need to have two effective management systems:

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• Credit risk control system to minimize the expected or unexpected loss and increase the returns;

• A technology supported system to monitor liquidity flows to maximize the value of liquidity.

The operating cash flow ratio refers to the ratio of operating cash flow to operating profit. The cash from the operation is equal to the net operating income plus various depreciation, impairment provision and other non-cash charge. The operating cash flow is equal to the net increase in operating assets such as operating income from the operation minus accounts receivable and inventory.

Cash operating flow ratio = (cash earned from operation - net increase in operating assets) ÷ cash from operating
 

Receivables are the most important element of liquidity next to the cash in operations. Receivables financing is a common practice in most developed countries to help corporate improve cash operating flows. 

For the purpose of a whole liquidity management system, an integrated and technology supported system will help corporate manage cash flows in relation to sales, costs and profit. This part is for internal funding control., With credit support, corporate can arrange external funding resources for receivables financing, inventory financing, buyer credit financing, supplier credit financing, etc.