Management of Current Liabilities

Front

What are the learning outcomes of the FIN3513 Financial Management course?

Back

1. Explain the working capital financing policies. 2. Describe the pros and cons of short-term financing/current liabilities. 3. Briefly explain the sources of short-term financing/current liabilities.

Front

What are the three sources of financing mentioned?

Back

1. Spontaneous source 2. Temporary source 3. Permanent source

Front

What are the pros of short-term financing?

Back

1. Potential to debt 2. Quick funding 3. Handles seasonal uncertainties 4. Easy to qualify

Front

What are the cons of short-term financing?

Back

1. Require frequent payments 2. High interest rate

Front

What are the three working capital policies?

Back

1. Aggressive approach 2. Maturity-matching approach 3. Conservative approach

Front

What is the maturity-matching approach?

Back

Firms hedge against working capital risks by matching the maturities of assets and liabilities.

Front

How does the maturity-matching approach finance seasonal variations?

Back

It finances seasonal variations in current assets with current liabilities of the same maturity and finances long-term assets by issuing long-term debt and equity securities.

Front

What is the conservative approach to financing working capital?

Back

It uses more long-term and less short-term financing to avoid credit-related risk.

Front

What does the aggressive approach aim to achieve?

Back

It aims to raise the profitability of the firm by using less long-term and more short-term financing.

Front

What are some sources of short-term financing?

Back

1. Trade credit 2. Public deposits 3. Installment credit 4. Commercial banks 5. Deferred income 6. Accruals 7. Commercial paper 8. Inter-corporate deposits 9. Factoring