FINA274 lecture 3

FINA274 lecture 3 - Short-term financing Topic 3.a FINA 274...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Short-term financing Topic 3.a. FINA 274 1 Lecture 3: Methods of Firm Financing
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
What is short-term finance? Near term financing needs of the firm Associated with short-term operating activities Buying inventory Pay worker wages Selling products Obligations that are generally measured in less than one year A component of net working capital FINA 274 Lecture 3: Methods of Firm Financing 2
Image of page 2
Components of net working capital Current assets – can be converted into cash within one year Cash Marketable securities Accounts receivable Inventory Current liabilities – require cash within one year Accounts payable Accrued wages Taxes FINA 274 Lecture 3: Methods of Firm Financing 3
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Net working capital FINA 274 Lecture 3: Methods of Firm Financing 4 How much short- term cash flow does a company need to pay its bills? Net Working Capital Current Assets Fixed Assets 1. Tangible 2. Intangible Shareholders’ Equity Current Liabilities Long-Term Debt
Image of page 4
Operating and cash cycles FINA 274 Lecture 3: Methods of Firm Financing 5 Time Accounts payable period Cash cycle Operating cycle Cash received Accounts receivable period Inventory period Finished goods sold Firm receives invoice Cash paid for materials Order Placed Stock Arrives Raw material purchased
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Float The difference between the book cash and the bank cash You know you have a few days after writing a check before the money is removed from your account Components of float Mail – time the payment takes to get from buyer to seller Processing – time between receiving and depositing payment Clearing – time required for the funds to show up A firm can control float through… Accounts receivables – accelerate collection Accounts payable – delay disbursement Whoever is holding the cash is earning the interest FINA 274 Lecture 3: Methods of Firm Financing 6
Image of page 6
Financing policies Firm needs to decide how much to invest in current assets More inventory held and more liberal sales collection policies require a greater investment in current assets The size of investment is generally measured in terms of operating revenue A flexible financing policy entails higher ratio of current assets to sales Firm needs to decide how current assets are financed Using long term debt is safer, but more costly than short term financing A flexible financing policy uses more long-term debt FINA 274 Lecture 3: Methods of Firm Financing 7
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Short term financial plan An ideal world Net working capital is zero Short term assets are financed by short term financing Long term assets are financed by long term financing But cash short falls occur Accounts payable and receivables may not align Inventory may not turnover as planned How do firms manage that short fall?
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern