Before 2008 the trend towards short term financing was fuelled by a global surplus of cheap bank finance, however, the financial crisis put an end to this.
Arnold 2019
Required:
Outline the advantages and disadvantages of a company following an aggressive and conservative financing policy. And discuss how each of these policies might impact on its value. Describe two sources of short term finance (one bank source and one other) and evaluate the advantages and disadvantages of each source.
Aggressive Financing Policy
Aggressive Financing Policy uses short-term finance for financing short-term working capital. Infact it is also used to finance a portion of permanent (long term) working capital. In this policy there is high degree of risk involved as the current assets (cash, bank and receivables) are maintained only to a certain limit.
Advantages of Aggressive Financing Policy
Disadvantages of Aggressive Financing Policy
Impact on value of firm
Aggressive Financing Policy has negative impact on profitability and value of company.
Conservative Financing Policy
Conservative Financing Policy uses long term finance for financing working capital. The firm maintains high degree of current assets and working capital. This policy does not involve much risk.
Advantages of Conservative Financing Policy
Disadvantages of Conservative Financing Policy
Impact on value of firm
Conservative Financing Policy has positive impact on profitability and value of firm.
Sources of Finance
Bank Credit - Commercial Banks often provide short term finance ro the firm, it is called bank credit. When bank credit is granted the firm can draw the amount in installments or all at the same time.
Advantages
Disadvantages
Trade Credit - Trade credit is the credit granted to the company in usual course of business by the suppliers/manufacturer allowing the firms to purchase the products without making an immediate payment.
Advantages
Disadvantages
Before 2008 the trend towards short term financing was fuelled by a global surplus of cheap...
Before 2008 the trend towards short term financing was fuelled by a global surplus of cheap bank finance, however the financial crisis put an end to this. Arnold 2019 Required: Outline the advantages and disadvantages of a company following an aggressive and conservative financing policy. And discuss how each of these policies might impact on its value. Describe two sources of short term finance (one bank source and one other) and evaluate the advantages and disadvantages of each source. Discuss...
Before 2008 the trend towards short term financing was fuelled by a global surplus of cheap bank finance, however the financial crisis put an end to this. Arnold 2019 Required: Outline the advantages and disadvantages of a company following an aggressive and a conservative financing policy. And discuss how each of these policies might impact on its value. (8 marks) Describe two sources of short term finance (one bank source and one other) and evaluate the advantages and disadvantages of...
Aa Aa 12. Short-term financing Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term...
12. Sources of short-term financing Aa Aa Short-term credit, or short-term financing, is any liability that is scheduled for repayment within one year. Among the sources of short-term funds are banks, suppliers, securities firms, and insurance companies. Their securities (or obligations) can take the form of bank loans, trade credit, commercial paper, and accruals. Some types of short-term financing are easier to obtain and manage than others. Financial managers should consider the costs of the various sources of financing as...
Drop-down options: (accruals, trade credit, commercial paper, bank loans) 12. Sources of short-term financing Short-term credit, or short-term financing, is any liability that is scheduled for repayment within one year. Among the sources of short-term funds are banks, suppliers, securities firms, and insurance companies. Their securities (or obligations) can take the form of bank loans, trade credit, commercial paper, and accruals. Some types of short-term financing are easier to obtain and manage than others. Financial managers should consider the costs...
SHORT-TERM FINANCING AND OPTIONS CONTRACT Gregg, the CFO and the board of directors of Baldwin Inc. have taken enough time to discuss capital budgeting, dividend policy, and capital structure and now want to focus their attention on short-term finance and cash planning of the company. The board is considering the ways to improve the working capital management of the company. They are also discussing various sources of short-term financing and the minimum amount of money to borrow in the short-term...
HORT-TERM FINANCING AND OPTIONS CONTRACT Gregg, the CFO and the board of directors of Baldwin Inc. have taken enough time to discuss capital budgeting, dividend policy, and capital structure and now want to focus their attention on short-term finance and cash planning of the company. The board is considering the ways to improve the working capital management of the company. They are also discussing various sources of short-term financing and the minimum amount of money to borrow in the short-term...
HORT-TERM FINANCING AND OPTIONS CONTRACT Gregg, the CFO and the board of directors of Baldwin Inc. have taken enough time to discuss capital budgeting, dividend policy, and capital structure and now want to focus their attention on short-term finance and cash planning of the company. The board is considering the ways to improve the working capital management of the company. They are also discussing various sources of short-term financing and the minimum amount of money to borrow in the short-term...
HORT-TERM FINANCING AND OPTIONS CONTRACT Gregg, the CFO and the board of directors of Baldwin Inc. have taken enough time to discuss capital budgeting, dividend policy, and capital structure and now want to focus their attention on short-term finance and cash planning of the company. The board is considering the ways to improve the working capital management of the company. They are also discussing various sources of short-term financing and the minimum amount of money to borrow in the short-term...
HORT-TERM FINANCING AND OPTIONS CONTRACT Gregg, the CFO and the board of directors of Baldwin Inc. have taken enough time to discuss capital budgeting, dividend policy, and capital structure and now want to focus their attention on short-term finance and cash planning of the company. The board is considering the ways to improve the working capital management of the company. They are also discussing various sources of short-term financing and the minimum amount of money to borrow in the short-term...