Page 251 - Cambridge IGCSE Business Studies

19: Business finance: needs and sources

CASE STUDY Cemex

Cemex selling assets to raise cash
Cemex is the largest cement producer in the western hemisphere. Th e Mexican company
also part owns subsidiaries in Trinidad and Jamaica.
According to a Bloomberg report in February, Cemex has not declared a profi t in the
past two years.
Cemex got into trouble because of an expensive purchase of the building products
company, Rinker Group, in 2007. More than 80% of Rinker Group’s revenue was from its
sales in the USA. Just aft er Cemex purchased Rinker Group, the USA went into recession.
Th e recession led to a sharp decrease in the sale of cement and other building products.
In his 2011 letter to Cemex shareholders, the company’s CEO stated: ‘In 2011, we sold
assets valued at US$225 million, and expect to sell an additional US$500 million in assets by
the end of 2012. All of these sales meet two important criteria: they improve our return on
capital employed and reduce our long-term debt.’

Source: Adapted from www.aggregateresearch.com/articles/24779/
Cemex-selling-assets-to-raise-cash.aspx

TASK
249
a Identify and explain two reasons why Cemex needed to raise finance from the sale of assets.
b Do you think selling assets was the best source of finance for Cemex to use to pay off its debts? Justify your answer.

Use of working capital
Businesses may be able to use some of their working capital to raise additional

funds. Sources of finance may come from:
■ cash balances
Working capital: see
Chapter 20, page 263. ■ reducing inventory levels
■ reducing trade receivables (debtors).

Cash balances

Any cash a business has can be used to finance capital expenditure.
However, businesses must make sure that they have enough cash to finance

their day-to-day expenses, short-term debts and any unexpected expenditure.

If too much cash is used to finance capital spending, they risk not being
able to pay day-to-day expenses. This could threaten the survival of the

business.
Reducing inventory levels
The business may decide to reduce the quantity of raw materials and components or

finished goods it holds.

Inventories: see Chapter 15, For example, if a business has inventories valued at $60,000 and it is
page 205. able to reduce this to $50,000, then this will mean that $10,000 less cash

is tied up in inventories. This cash is now available for other, more
profi table, uses.