@v587d/capital-generation 2.7.7 → 2.7.8

package/selected-skills/financeskills/skills/wacc-computation/references/capm-basics.md

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+# CAPM Basics
+
+## The Model
+`Re = Rf + β × ERP (+ size premium + country risk premium, if applicable)`
+
+- **Rf (Risk-Free Rate)**: Yield on default-free government bonds matching the cash flow horizon. Standard: 10-year Treasury (USD) or 10-year FGN bond (NGN valuations, with care — embed inflation differential).
+- **β (Beta)**: Sensitivity of the stock's returns to market returns. β > 1 = more volatile than market.
+- **ERP (Equity Risk Premium)**: Expected market return minus Rf. Common practice: 4.5%–6.0% mature-market ERP (Damodaran's updates are the standard citation).
+
+## Adjustments
+- **Size premium**: Add 1%–3% for small caps (Duff & Phelps/Kroll size deciles).
+- **Country risk premium (CRP)**: For emerging markets, add CRP = sovereign default spread × (σ_equity / σ_bond). Apply fully or scaled by the firm's revenue exposure (lambda approach).
+- **Currency consistency**: Match Rf, ERP, and cash flow currency. Never mix a USD risk-free rate with NGN cash flows without adjusting for inflation differential.
+
+## Common Errors
+1. Using a short-term T-bill rate for long-horizon valuation.
+2. Using raw regression beta without checking statistical significance (low R² → prefer industry beta).
+3. Double-counting country risk in both the discount rate and cash flow haircuts.
+4. Applying historical ERP over too short a window.
+
+## When CAPM Breaks Down
+- Private companies: no observable beta → unlever/relever industry comparables (see beta-math.md).
+- Thinly traded stocks: betas are unreliable → use sector betas.
+- Multi-business firms: compute divisional betas from pure-play comparables.

package/selected-skills/financeskills/skills/working-capital-analysis/EXAMPLE.md

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+# Worked Example - working-capital-analysis
+
+## Ask
+
+> Revenue 7.3B/year, COGS 5.1B/year. AR 1.2B, inventory 900M, AP 700M. Compute the CCC and tell me what 10 days of DSO improvement is worth.
+
+## What a correct response contains
+
+DSO = 60 days, DIO = 64.4 days, DPO = 50.1 days, CCC = ~74.3 days. One day of revenue = 20M, so 10 DSO days = ~200M cash release.
+
+## File-driven variant
+
+With fixture(s) `evals/files/wc_balances.csv`:
+
+> From the attached balances (evals/files/wc_balances.csv), compute DSO, DIO, DPO, the cash conversion cycle, and the working-capital funding need it implies. Quantify the cash freed by cutting DSO by 10 days.
+
+Expected: DSO 60.0, DIO 77.8, DPO 53.7; CCC 84.1 days; funding need $13,278,279; 10 fewer DSO days frees ~$1,578,082.
+
+## Compute, don't estimate
+
+All figures above come from [`scripts/calculate.py`](./scripts/calculate.py) - import its functions rather than doing arithmetic in prose.

package/selected-skills/financeskills/skills/working-capital-analysis/SKILL.md

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+---
+name: working-capital-analysis
+description: When the user wants to analyze or optimize working capital — receivables, payables, inventory, and the cash conversion cycle. Also use when the user mentions "DSO," "DPO," "DIO," "cash conversion cycle," "cash tied up," "AR aging," "payment terms," "working capital peg," or "free up cash."
+metadata:
+  version: 1.0.0
+---
+
+# Working Capital Analysis
+
+You are a Working Capital Manager. Your goal is to quantify how much cash is tied up in the operating cycle, find where it's stuck, and free it without damaging operations or supplier/customer relationships.
+
+## Initial Assessment
+
+1. **Data Set**
+   - Monthly balances (AR, inventory, AP, other WC items) for ≥ 24 months — month-ends hide intra-month peaks; get weekly if financing is tight.
+   - Revenue and COGS by month; AR/AP agings; top-10 customer and supplier terms.
+
+2. **Context**
+   - Seasonality pattern, growth rate (growth consumes WC mechanically), any deal context (M&A working capital peg) or covenant pressure.
+
+---
+
+## Analysis Framework
+
+### Core Metrics
+- `DSO = AR / Revenue × 365` (use the countback method for seasonal businesses — simple DSO lies when sales swing)
+- `DIO = Inventory / COGS × 365`
+- `DPO = AP / COGS × 365`
+- `CCC = DSO + DIO − DPO`; `Cash impact of 1 day = annual revenue (or COGS) / 365`
+
+### Benchmark & Decompose
+Compare against sector peers and own history. Decompose every deterioration: volume vs. terms vs. discipline:
+- DSO up → mix shift to slower payers? terms creep? billing delays? disputes? collection slack? (aging waterfall answers this)
+- DIO up → safety-stock policy, slow-moving build (inventory-costing matrix), purchasing ahead of price increases, demand miss?
+- DPO down → early payments without discount capture? supplier term renegotiations lost? (Check: paying EARLY with no discount is free lending.)
+
+### Improvement Levers (ranked by speed)
+1. Billing hygiene: invoice same-day on delivery; e-invoicing; dispute root-cause kill list.
+2. Collections cadence: dunning calendar, credit holds, collector portfolios with targets.
+3. Terms governance: standard terms by segment, exception approval matrix, term-vs-price trade explicit.
+4. Payables: pay ON terms (not before), capture early-pay discounts only when discount APR > cost of funds: `APR = discount%/(1−discount%) × 365/(full term − discount term)`.
+5. Inventory: SKU-level service-vs-stock optimization, supplier lead-time programs, consignment.
+6. Structural: receivables financing/factoring, supply chain finance, dynamic discounting (cost these honestly).
+
+---
+
+## Technical Analysis Steps
+
+1. **Compute with code**: monthly metric trends, countback DSO, peak-vs-average WC, cash release quantification per lever (`days improvement × daily revenue/COGS`).
+2. **Aging quality analysis**: AR aging migration matrix month-over-month (which buckets feed 90+?); concentration of overdue in named accounts.
+3. **Seasonality-adjusted target**: set targets vs. same-month prior year; an absolute target across a seasonal year guarantees a fake Q-end scramble.
+
+---
+
+## Output Format
+
+### Working Capital Review
+
+**Dashboard**: CCC trend, component days, cash tied up vs. benchmark ("X days above peer median = ₦Y trapped").
+
+**Diagnosis**: decomposition of each component's movement with evidence.
+
+**Opportunity Sizing**: lever-by-lever cash release estimate with implementation difficulty.
+
+**Action Plan**: owner, lever, target days, timeline, and the operational risk of each move.
+
+---
+
+## Scripts
+- [calculate.py](./scripts/calculate.py): Deterministic functions for this skill's core computations. Run `python3 scripts/calculate.py` to self-test; import the functions instead of doing mental math.
+
+---
+
+## References
+- [WC Metrics Cookbook](./references/wc-metrics.md): Countback DSO, aging migration analysis, and the discount-APR decision rule.
+
+---
+
+## Related Skills
+- **treasury-management**: WC drives the cash forecast.
+- **financial-analysis**: Ratio context for the balance sheet.
+- **inventory-costing**: The valuation behind DIO.
+- **predictive-burn-rate**: For startups, WC timing is the collections curve.

package/selected-skills/financeskills/skills/working-capital-analysis/references/wc-metrics.md

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+# Working Capital Metrics Cookbook
+
+## Countback DSO (use when sales are seasonal — always, really)
+Walk backwards through monthly sales until AR is exhausted:
+AR = 950; sales: Mar 400, Feb 380, Jan 350.
+- Mar covers 400 (31 days), remaining 550; Feb covers 380 (28 days), remaining 170; Jan: 170/350 × 31 = 15 days.
+- **Countback DSO = 31 + 28 + 15 = 74 days.** Simple DSO (950/avg monthly × 30) would misstate this badly after a strong quarter.
+
+## Aging Migration Matrix
+Track each bucket's flow month-over-month:
+| From \ To | Current | 1–30 | 31–60 | 61–90 | 90+ | Collected |
+|---|---|---|---|---|---|---|
+| Current | — | 22% | — | — | — | 78% |
+| 1–30 | — | — | 35% | — | — | 65% |
+| 31–60 | — | — | — | 48% | — | 52% |
+| 61–90 | — | — | — | — | 60% | 40% |
+Roll rates rising = collections discipline slipping BEFORE headline DSO moves. The 61–90 → 90+ roll rate is your bad-debt early warning and feeds the ECL provision matrix.
+
+## Early-Payment Discount APR Rule
+"2/10 net 45": `APR = 0.02/0.98 × 365/35 = 21.3%`.
+Take the discount if 21.3% > your marginal cost of funds; otherwise pay day 45. Build the table for every supplier's standard terms once — most teams leave easy money on one side or the other.
+
+## Peak vs. Average Working Capital
+Month-end WC understates the intra-month peak (payroll dates, VAT/tax payment days, inventory builds before sales spikes). For facility sizing: estimate peak = month-end + known intra-month swings; for M&A pegs: use a 12-month average to neutralize seasonality and define every account in the peg schedule explicitly (cash-free debt-free fights are won in the definitions).
+
+## Growth's WC Tax
+`ΔWC ≈ (CCC/365) × Δrevenue` (revenue-margin adjusted). A business at CCC 90 days growing revenue by 1B needs ~250M of new cash just to stand still — surface this in every growth plan review.
+
+## Quarter-End Window Dressing Tells
+DPO spikes every quarter-end then normalizes; receivables factored in the last week; inventory cut by delaying receipts. Use intra-period averages to see through it — and don't build the company's own targets in a way that incentivizes the same games.