Wednesday, May 6, 2020

Short Term and Long Term Financing - 5177 Words

| Sources of Short-Term and Long-Term Financing | SOURCES OF SHORT-TERM AND LONG-TERM FINANCING What is short-term financing? Short term financing has repayment schedules of less than 1 year Source: www.wiki.answers.com A loan or credit facility with a maturity of one year or less. Source: www.allbusiness.com Sources of Short-Term Financing * Trade Credits * Accruals * Commercial Papers * Bank loans * Banker’s acceptances * Receivable financing * Inventory financing Advantages and Disadvantages of Short-term Financing Advantages: * Easier to arrange * Less expensive * Provides borrower more flexibility Disadvantages * Interest rates fluctuate more often * Refinancing is†¦show more content†¦Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates. Bank Loans The act of giving money, property or other material goods to a another party in exchange for future repayment of the principal amount along with interest or other finance charges. A loan may be for a specific, one-time amount or can be available as open-ended credit up to a specified ceiling amount. Compensating Balances A type of premium paid by an insured business. Compensating balances plans allow firms to subtract various expenses from the premiums that they pay to their carriers. This allows the business to divert this portion of the premium to a separate account from which it can draw. Interest Rates The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset s use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the â€Å"lease rate†. When the borrower is a low-risk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interestShow MoreRelatedBusinesses keep a close eye on the money they make and the bills they owe. Anything that is not paid immediately is financed. Critically discuss the d1624 Words   |  7 Pagesthe shareholders, long-term and short-term sources. There are risks on every decisions that investors make to finance a business as no one knows how will it goes in the future. Factors like natural disaster, economic crises and changes in demand of markets might destroy the business. Therefore, sometimes it is difficult for businesses to raise funds if investors do not want to take the risk. Short-term financing and long-term financing Short-term financing and long-term financing are divided intoRead MoreFinancial Equity Essay865 Words   |  4 Pagesfactors impacted financing decision. The focus was not in testing a theory but getting â€Å"a deeper understanding how investment and cash flow shocks affect a firms financing decision.† (Gatchev, Spindt, Tarhan, 2009) The study was designed to determine which financing decisions were affected based on the information gathered for consideration. Specifically, the purpose was to determine what the causation or determining factors were when equity was being considered as a source of financing or what theRead MoreWorking Capital Management: Current Asset Holdings and Financial Policies1279 Words   |  5 Pagesand Financing Policies Introduction Working capital management is a strategized tool of corporate finance for making financial decisions that make and analyze a business enterprise. This finance management method in a corporate organization involves the comprehension of the totals while conducting working capital plus how it is financed. There are several concepts that assist in the comprehension of proper working capital management. These concepts are current asset holdings and financing policiesRead MoreScott Equipment Organization Paper1370 Words   |  6 Pagescompanies use debt financing to achieve financial goals. Some choose to use debt consolidation financing. By having a wide range of financing options available, a company is able to get their business up and running faster. This paper will examine three options of financing for Scott Equipment. The aggressive, moderate, and conservative financing options will be calculated and compared in order to determine the best option for Scott Equipment. Summary of Short-Term and Long-Term Financing Policy Options Read MoreMiss638 Words   |  3 Pages1. Compare and contrast a return on assets analysis versus a return on sales which companies will benefit most from the former and why?    ROA (short for return on assets) is a measure of a company’s profitability relative to total assets invested in the business by the owners.    ROA = Net Income/Assets    ROS (short for return on sales) on the other hand is a measure of a company’s overall operating efficiency.    ROS =Net Income/Revenue    Both ROA and ROS indicate the level of efficiencyRead MoreShort Term Financial Policies1216 Words   |  5 PagesPTMBA I / Trim III (A. Y. 2010-11) Div. C. Assets of Short Term Financial Policy Flexible Short Term Financial Policy Maintainance of high ratio of current assets to sales. This would include:- ⠝â€" Keeping large cash bank balances ⠝â€" Making substantial investment in inventories. ⠝â€" Liberal Credit Term meaning high level of debtors. Restrictive Short Term Financial Policy. This would include:- ⠝â€" Low cash balances / no investment in marketable securities ⠝â€" Small inventory levelRead MoreScott Equipment Organization1207 Words   |  5 Pages Scott Equipment Organization Many businesses use debt financing to achieve their financial goals. Debt financing is raising operating capital by borrowing. Scott Equipment Organization is investigating various combinations of short-term and long-term debt financing in financing their assets. Short-term debt financing has a maturity of one year or less; whereas, long-term debt financing has a maturity of more than one year. Short-term debt is usually used to increase the amount of available workingRead MoreThe Importance Of Financial Investments889 Words   |  4 Pagesarticle, a prediction is made that states if firms whose asset values are unclear, if they will use debt to cover financing needs, and issue equity as a last resort. These predictions were tested. It was found that investment induced deficit were financed using both long term debt and short term debt, as well as equity. It was also found that cash balances were not a source of financing. Another finding was that small firms, high-growth firms , and less profitable firms tend to use equity to coverRead MorePanera Bread Co Business Model And Efficient Business Operations1392 Words   |  6 Pagesrespects to the company’s business model and efficient business operations. The methods of analysis utilized include: breakdown of several financial statements such as: income statements, balance sheets, pro-forma statements, as well as, short-term and long-term solvency ratios. As a result of poor performance of in-store sales, in its current growth phase, the company is facing inability to rely on internal funding; which has led to tighter margins. Increases in product and material costs, andRead MoreShort Term Financial Policies1229 Words   |  5 PagesPTMBA I / Trim III (A. Y. 2010-11) Div. C. Assets of Short Term Financial Policy Flexible Short Term Financial Policy Maintainance of high ratio of current assets to sales. This would include:- ⠝â€" Keeping large cash bank balances ⠝â€" Making substantial investment in inventories. ⠝â€" Liberal Credit Term meaning high level of debtors. Restrictive Short Term Financial Policy. This would include:- ⠝â€" Low cash balances / no investment in marketable securities ⠝â€" Small

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