ch18 - Corporate Finance Chapter 18 Short-term Finance and...

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Corporate Finance Chapter 18 Short-term Finance and Planning I. Cash and Net Working Capital a. Net Work Capital = current assets – current liabilities b. Cash = long-term debt + equity + current liabilities – current assets other than cash – fixed assets c. An increase in long-term debt and/or equity leads to an increase in cash d. A decrease in fixed asset and/or non-cash components of net working capital leads to an increase in cash II. The operating cycle and the cash cycle a. Operating cycle i. Inventory period + accounts receivable period b. Cash cycle i. Operating cycle – accounts payable period III. Short-term financial policy a. Size of the firm’s investment in current assets i. Flexible: high ratio of current assets to sales ii. Restrictive: low ratio of current assets to sales b. The financing of current assets i. Flexible: more long-term debt than short-term ii. Restrictive: high short-term debt c. Flexible i. Large balances of cash and marketable securities ii. Makes large inventories in inventory
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This note was uploaded on 05/10/2010 for the course FIN 3414 taught by Professor Staff during the Fall '08 term at University of Central Florida.

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ch18 - Corporate Finance Chapter 18 Short-term Finance and...

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