43 Exhibit 22.4 Carlton Brazil’s Net Working Capital Requirements Net Working Capital (NWC) is the net investment required of the firmto support on-going sales. NWC components typically grow as thefirm buys inputs, produces product, and sells finished goods.Carlton Brazil’s Balance SheetAssetsLiabilities & Net WorthCashAccounts payable (A/P)Accounts receivable (A/R)Short-term debtInventoryCurrent assetsCurrent liabilitiesNWC = ( A/R + Inventory ) - A/PNote that NWC is not the same as Current assets & Current liabilities.
47 Exhibit 22.6 Carlton’s Multinational Working Capital Sequence Cash inflows to Carlton Brazil arise from local market sales.These cash flows are used to repay both intra-firm payables(to Carlton USA) and local suppliers.Carlton BrazilBalance SheetCarlton USABalance SheetIntra-firm:30 days60 days30 daysA/RInventoryA/PA/RInventoryA/PA/PLocal-sourcing: 60 daysBrazilian Business PracticesPayment terms in Brazil are longer than those typical of the United States. Carlton Brazil must offer 60-day terms to local customers to be competitive with other firms in the local market.United States Business PracticesPayment terms used by Carlton USA are typical of the United States, 30 days. Carlton USA’s local customers will expect to be paid in 30 days. Carlton USA may consider extending longer terms to Brazil to reduce the squeeze.Result: Carlton Brazil is squeezed in terms of cash flow. It receives inflowsin 60 days but must pay Carlton USA in 30 days.
55 Exhibit 22.8 Multilateral Matrix Before Netting (thousands of US dollars) $4,000Carlton USACarlton Germany$3,000$3,000$5,000$5,000$5,000$6,000$4,000$3,000$2,000$2,000Carlton BrazilCarlton China$1,000Prior to netting, the four sister affiliates of Carlton companies have numerousintra-firm payments between them. Each payment results in transfer charges.
56 Exhibit 22.9 Multilateral Matrix After Netting (thousands of US dollars) Carlton USACarlton GermanyPays $1,000Pays $3,000Pays $1,000Carlton BrazilCarlton ChinaAfter netting, the four sister Carlton companies have only threenet payments to make among themselves to settle all intra-firm obligations