Determinants Of Short Term Debt Financing


2) Financing
: Financing is the decision of how to pay for both short-term and long-term assets. That helps a determination how much for each term debt and equity the best would be. Long-term debt and Stockholders’ equity are regarded as the parts of Financing.

leverage increases, interest rate on the total debt will increase. The Company is considering the

| The portion of current assets financed through long-term financing is referred to as the:Answer

Creditors normally focus on the liquidity or solvency of the borrower in terms of current ratio and quick ratio, which indicate whether the company has enough working capital to cover the short-term debts. Myer will enter into a syndicated facility agreement to refinance the existing borrowings of the Myer Group. Besides, creditors are interested in the business risks the company might undertake, which indicate the possibility that the company might be unable to pay back the long-term liability in the future. From this point, the expectation on high return on investment and high profitability in the long run make the creditor’s interest aligned with shareholders’ value.

Many businesses use debt financing to achieve their financial goals. Debt financing is raising operating capital by borrowing. Scott Equipment Organization is investigating various combinations of short-term and long-term debt financing in financing their assets. Short-term debt financing has a maturity of one year or less; whereas, long-term debt financing has a maturity of more than one year. Short-term debt is usually used to increase the amount of available working capital that can assist the company with its day-to-day operations, such as purchasing a required piece of equipment or to pay suppliers.

All else being equal, higher financial leverage will decrease a company’s debt rating and increase the interest rate it must pay.

A) results in increases in the firm's indebtedness in domestic currency terms, even though the value of their assets remains unchanged.

The current assets are those which are readily convertible into cash and cash equivalents due to their highly liquid nature and also form part of working capital of the company’s operations. However, the long term assets in contrast are not liquid because since they have a useful life of more than a year and hence their full value cannot be easily realized within

According to the ratio analysis and changes in cash flow, it is necessary for Lawsons to seek less expensive debt. Based on the projected financial statements, it is reasonable to grant partial amount.

The most important thing is that, according to our estimation, the next five-year we will get additional funds needed increasingly with no surplus funds; which means, our assets increase faster than our liabilities. Therefore, our company goes well in the short term future based on this model. In conclusion,

As additional part of the covenants the bank placed importance on the net working capital. This could have positive impact to the firm’s future. As the firm is affected by liquidity problems, the covenants on net working capital will make Butler to

1.) Selected option should lead to a reduction in working capital requirement and reduce short term debt in the process.

In the business world companies are always trying to maximize their earning potential by strategically investing in short-term financing. In terms of finance short-term may mean months or even a couple of years. The type of finance method that is used is contingent on the specific needs of the corporation. These methods include trade credit, bank credit, financing through commercial paper, foreign borrowing, and the use of collateral, accounts receivable financing, inventory financing and hedging to reduce borrowing risk.

The financial analysis of the balance sheet shows that the percentage of equity in the sources of funds is decreasing while the debt is escalating. Short term liability has compounded from 14% to 39% while long term liability had increased from 16% to 24%. The Debit/equity ratio shows an almost double increase in dependence on borrowed funds between 2007-2008, leading to a greater obligation of fixed interest payment, and a lessor safety margin for long term creditors. An increasing Debit-equity ratio can also create difficulties in raising additional loans. This triggered a potential lack of future financing, considering that Gerhard Schroder property developer had indicated that he was unwilling to continue to provide financial support to the organization. Additionally, they

One key risk faced by firms, is the risk in the fluctuation of interest rates over the borrowing of sums. The fluctuation of interest rates can effect businesses due to the uncertainty of the rate of interest increasing. The effect of changes in interest rates can depend on many factors such as; the amount that a business has borrowed and for what period of time for, the amount of cash that a business holds and also whether the business operates in certain markets where demand is sensitive to changes in the interest rates. The effect of fluctuating interest rate on businesses can lead to borrowing becoming expensive as a result of a high rate, therefore it makes it much more financially difficult to receive the necessary funds needed for the business operations. One way in which these risks of fluctuations are managed by businesses, is that they use a method of hedging called ‘swaps’. Seen in figure 20.11-fundamentals of corporate finance, it shows how two firms can use the ‘swap’ contract to limit and/or manage the exposure to the fluctuation of interest rates, or