- 1. 2005, Pearson Prentice Hall Chapter 18 Working-Capital
Management and Short-term Financing
2. Working-Capital Management
-
- Cash, marketable securities, inventory, accounts
receivable.
-
- Equipment, buildings, land.
- Which earnhigher rates of return ?
- Which help avoid risk ofilliquidity ?
3. Working-Capital Management
-
- Cash, marketable securities, inventory, accounts
receivable.
-
- Equipment, buildings, land.
- Current assets earn low returns, but help reduce therisk of
illiquidity.
4. Working-Capital Management
-
- Short-term notes, accrued expenses, accounts payable.
- Long-Term Debt and Equity
-
- Bonds, preferred stock, common stock.
- Which are moreexpensivefor the firm?
- Which help avoid risk ofilliquidity ?
5. Working-Capital Management
-
- Short-term notes, accrued expenses, accounts payable.
- Long-Term Debt and Equity
-
- Bonds, preferred stock, common stock.
- Current liabilities are less expensive, but increase therisk of
illiquidity.
6.
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- To illustrate, letsfinance all current assets with current
liabilities ,
7.
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- To illustrate, lets finance allcurrent assetswithcurrent
liabilities , andfinance all fixed assets with long-term financing
.
8.
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Suppose we uselong-termfinancing to finance some of ourcurrent
assets .
9.
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Suppose we uselong-termfinancing to finance some of ourcurrent
assets .
- This strategy would beless risky , butmore expensive!
10.
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Suppose we usecurrent liabilitiesto finance some of ourfixed
assets .
11.
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Suppose we usecurrent liabilitiesto finance some of ourfixed
assets .
- This strategy would beless expensive , butmore risky !
12. The Hedging Principle
- Permanent Assets(those held>1 year)
-
- Should be financed with permanent and spontaneous sources of
financing.
- Temporary Assets(those held