Financial Structure Flashcards
What is the Financial Structure of a firm?
Includes all items of liabilities and equity used to finance the firm’s assets. (total right side of B/S) All debt and equity
What does Capital Structure include?
long tern liabilities and owners’ equity
What can provide short term financing?
AP
AR
Inventory
(cuurent assets and current liabilities)
How long is short term financing concerned with?
Obligations that will become due in one year or less
What does pledging AR mean?
the receivables are used as collateral in a financing agreement with a lender.
What does factoring of AR mean?
the receivables are sold at a discount for cash to a factor
Spontaneous financing
occurs automatically in the carrying out of day-to-day operations. (accrued taxes payable, accured salaries payable, trade accounts payable)
The level of financing goes up concurrent with the purchase of G/S or the carrying out of day to day activities
Cost of a loan
the interest. Multiple the interest rate by the amount borrowed.
how do you calc the effective interest rate on a loan?
Determine the cost of the loan: Amount borrowed x interest rate.
Determine net proceeds. amoutn borrowed x compensating balance (then subtracted from amt borrowed)
Then divide cost of the loan / net proceeds
What is commercial paper?
Unsecured promissory notes. Mature in short term. users have high credit ratings. provides cash for operating use.
What is a revolving credit agreement?
Formal legal commitment, usually by a bank, to extend credit up to some maximum amount to a borrower over a stated period.
What is a letter of credit?
used to assure foreign suppliers of payment, a conditional commitment to pay a third party with accordance with specified terms.
What is the most commonly used form of collateral for short term loans?
Inventory
What is a field warehouse agreement?
a form of inventory secured loan where the inventory is placed under the control of an independent third party
What is a chattel mortgage agreement?
the borrower retains the inventory, but cannot sell it without the lenders approval
