week 2 CLD.pdf

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Graeme J.Mitchell

CHARACTERISTICS OF DIFFERENT TYPES OF LOANS (2).mmap - 4/16/2013 - Mindjet Current assets – Current liabilities For most firms, net working capital is positive, indicating that some current assets are not financed with current liabilities Cash/(Sales/365) AR/(Sales/365) Inventory/(COGS/365) AP/(Purchases/365) Accruals/(Operating Expenses/365) How long the firm must finance operating cash, inventory and accounts receivables from the day of first sale How long a firm obtains interest-free financing from suppliers in the form of accounts payable and accrued expenses to help finance the asset cycle Current liabilities net of short-term bank credit The minimum level of current assets minus the and current maturities of minimum level of adjusted current liabilities Adjusted Current long-term debt Liabilities Difference in total current assets and adjusted current liabilities Not legally binding but represent a promise that the lender will advance credit Legally binding even though no written agreement is signed A commitment fee is charged for making credit available, regardless of whether the customer actually uses the line The security consists of paper assets that presumably represent sales The quality of the collateral depends on the borrower’s integrity in reporting actual sales and the credibility of billings List of A/Rs grouped according to the month in which the invoice is dated Accounts Receivable Aging Schedule Customer’s mail payments go directly to a P.O. Box controlled by the bank Lockbox The bank processes the payments and reduces the borrower’s balance but charges the borrower for handling the items Involves a group of investors, often part of the management team, Target companies are generally those with buying a target company and taking it private with a minimum amount of equity and a large amount of debt undervalued hard assets If key assets have been undervalued, the investors may own a downsized company whose earnings prospects have The investors often sell specific assets or subsidiaries to pay improved and whose stock has increased in value down much of the debt quickly The investors sell the company or take it public once the market perceives its greater value LBOs in which debt is substituted for privately held equity Leveraged recapitalizations in which borrowers use loan proceeds to pay large dividends to shareholders Leveraged acquisitions i
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