ch15 - CHAPTER 15 CURRENT LIABILITIES MANAGEMENT LEARNING...

L E A R N I N G G O A L S
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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.
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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.
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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.