fm10e ch18
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- 1. 2005, Pearson Prentice Hall Chapter 18 Working-Capital Management and Short-term Financing
2. Working-Capital Management
- Current Assets
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- Cash, marketable securities, inventory, accounts receivable.
- Long-Term Assets
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- Equipment, buildings, land.
- Which earnhigher rates of return ?
- Which help avoid risk ofilliquidity ?
3. Working-Capital Management
- Current Assets
-
- Cash, marketable securities, inventory, accounts receivable.
- Long-Term Assets
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- Equipment, buildings, land.
- Risk-Return Trade-off:
- Current assets earn low returns, but help reduce therisk of illiquidity.
4. Working-Capital Management
- Current Liabilities
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- Short-term notes, accrued expenses, accounts payable.
- Long-Term Debt and Equity
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- Bonds, preferred stock, common stock.
- Which are moreexpensivefor the firm?
- Which help avoid risk ofilliquidity ?
5. Working-Capital Management
- Current Liabilities
-
- Short-term notes, accrued expenses, accounts payable.
- Long-Term Debt and Equity
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- Bonds, preferred stock, common stock.
- Risk-Return Trade-off:
- Current liabilities are less expensive, but increase therisk of illiquidity.
6.
- Balance Sheet
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Preferred Stock
- Common Stock
- To illustrate, letsfinance all current assets with current liabilities ,
7.
- Balance Sheet
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Preferred Stock
- Common Stock
- To illustrate, lets finance allcurrent assetswithcurrent liabilities , andfinance all fixed assets with long-term financing .
8.
- Balance Sheet
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Preferred Stock
- Common Stock
- Suppose we uselong-termfinancing to finance some of ourcurrent assets .
9.
- Balance Sheet
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Preferred Stock
- Common Stock
- Suppose we uselong-termfinancing to finance some of ourcurrent assets .
- This strategy would beless risky , butmore expensive!
10.
- Balance Sheet
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Preferred Stock
- Common Stock
- Suppose we usecurrent liabilitiesto finance some of ourfixed assets .
11.
- Balance Sheet
- Current AssetsCurrent Liabilities
- Fixed Assets Long-Term Debt
- Preferred Stock
- Common Stock
- 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)
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- Should be financed with permanent and spontaneous sources of financing.
- Temporary Assets(those held