AFM373 Lecture Notes - Lecture 4: Current Liability, Cash Conversion Cycle, Working Capital
28 Jun 2018
School
Department
Course
Professor
Tire City
January 15, 2018 2:33 PM
AFM 373 Page 1
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Alternatives: short term debt vs long
-
term
debt
Leasing warehouse is not really asked in this
case :c
We want to lower the risk presented to
a bank so we get charged a lower
interest rate.
•
Criteria
In general, its easier to pay off long
-
term debt
than short-term because you have more time
to pay off.
Also put ourselves in the bank's position
because they are looking for less risk.
Leverage ratios are good, there are a lot of
debt capacity for the company which banks
like to lend to.
Working capital gap days (cash conversion
cycle) = Days in A/R + days in Inventory
-
days
in A/P
If sales growth hits the firm, if the days above
stays constant, then we need a higher
financing need.
AFM 373 Page 3
Document Summary
Leasing warehouse is not really asked in this case :c. We want to lower the risk presented to a bank so we get charged a lower interest rate. In general, its easier to pay off long-term debt than short-term because you have more time to pay off. Also put ourselves in the bank"s position because they are looking for less risk. Leverage ratios are good, there are a lot of debt capacity for the company which banks like to lend to. Working capital gap days (cash conversion cycle) = days in a/r + days in inventory - days in a/p. If sales growth hits the firm, if the days above stays constant, then we need a higher financing need. If cogs grow at the same rate as sales, we are assuming cogs are all variable costs and. Cogs/sales stays constant as the last historical year. Current assets are driven by activities (so sales)
