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L E A R N I N G G O A L S 634 C URRENT L IABILITIES M ANAGEMENT C H A P T E R Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU Accounting: You need to understand how to analyze supplier credit terms in order to decide whether the firm should take or give up cash discounts; you also need to understand the vari- ous types of short-term loans, both unsecured and secured, that you will be required to record and report. Information systems: You need to understand what data the firm will need in order to process accounts payable, track accruals, and meet bank loans and other short-term debt obli- gations in a timely manner. Management: You need to know the sources of short-term loans so that if short-term financing is needed, you will under- stand its costs, both financial and ethical. Marketing: You need to understand how accounts receivable and inventory can be used as loan collateral; the procedures used by the firm to secure short-term loans with such collateral could affect customer relationships. Operations: You need to understand the use of accounts payable as a form of short-term financing and the effect on one’s suppliers of stretching payables; you also need to understand the process by which a firm uses inventory as collateral. Explain the characteristics of secured short-term loans and the use of accounts receivable as short-term-loan collateral. Describe the various ways in which inventory can be used as short-term-loan collateral. LG6 LG5 Review the key components of a firm’s credit terms and the procedures for analyzing them. Understand the effects of stretching accounts payable on their cost, and the use of accruals. Describe the interest rates and basic types of unsecured bank sources of short-term loans. Discuss the basic features of commercial paper and the key aspects of international short-term loans. LG4 LG3 LG2 LG1 15
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635 Y ou won’t see “ Bennett Footwear Group ” on any shoeboxes in your closet, but you may own some of its shoe brands, which include Franco Sarto and Danelle. Bennett designs, imports, and distributes women and children’s footwear and also markets its footwear through private- label programs with many key customers. Founded in 1961 as Bennett Importing, the company merged in 1998 with two other footwear companies, positioning the combined enterprise to serve a wide range of footwear markets. The company imports shoes from Italy, Brazil, China, and Por- tugal. Today Bennett’s customers include value-oriented retailers such as Payless ShoeSource and Wal-Mart, as well as major department stores such as Nordstrom, Filene’s, and Macy. Although the merger created economies of scale and better market penetration, it also brought Bennett a complex financial structure with much debt. Bennett also needed funds to “grow its business” quickly in three areas: to take advantage of the increasing popularity of the Franco Sarto brand, to branch out into men’s shoes and accessories, and to expand its private- label products for mass merchandisers.
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