chapter 7 treasury

Bank overdrafts

- are another short-term financing option commonly utilized by businesses_____arrangement with a bank where the business is allowed to withdraw funds exceeding the available balance in their bank account up to an agreed-upon limit ____provide flexibility in managing cash flow fluctuations

Factoring

- is a short-term financing solution that enables startups to convert their accounts receivable into immediate cash

factor

- selling outstanding invoices to a third-party financial institution ____ assumes responsibility for collecting the payments from your customers.

invoice discounting

- allows businesses to release cash in unpaid invoices _____ allows businesses to borrow against the value of their outstanding invoices, enabling them to access funds that would otherwise be tied up until the customers make the payments.

long-term financing

- involves securing capital for an extended period, typically exceeding one year

bank loans, bonds, equity financing, leasing arrangements, equity issued, Corporate bond, Capital notes

- Long-term financing options include

Bank loans

- are the most common form of long-term debt financing.

Bonds, loan notes

- operate by your startup issuing notes to investors under the promise to make interest payments on the loans and repay the full amount at the end of the period

Equity financing

- involves selling a portion of the business's ownership to investors in exchange for capital, It is a long-term financing approach commonly used by startups and high-growth companies

Leasing

- is relevant for businesses requiring access to high-valued assets like machinery, property, planes, or ships

working capital cycle

- counts the number of days needed by a company to fulfill its unmet current operating liabilities and collect the cash proceeds from customers on its earned revenue _____ determining the sources of finance. It also determines the allocation of these finances towards current assets and liabilities.

hedging, aggressive, and conservative

- three strategies can help optimize working capital financing for a business

Conservative Policy

- strategy only when it requires minimizing risk to the furthest. the management regulates the credit limits stringently to ensure low risk

Aggressive Policy

- involve the maximum risk, and thus, also bring the potential for multiplied growth.

Hedging Policy

- matching policy, adopting this strategy ensures that the current assets of a company are always in sync with short-term liabilities.

Maturity Matching Policy

- This policy reduces the risk of liquidity problems and helps ensure that the business can meet its obligations as they come due.

Liberal Policy

- This policy involves using short-term financing to fund long-term assets, which can be risky but also provides the potential for high returns.

Retained Earnings, Equity Capital, Preference Capital, Debenture Capital

- Merits and Demerits of

Retained Earnings

- are that part of the profits of an organisation, which remains with it after meeting all its operating expenses and paying out dividends to all the shareholders

Share trading

- is popularly known as preference shares or preferred stock which is different from common stock. These types of shares seem to have both a positive impact and negative connotations in relation to the issuing companies and their investors

Commercial papers, Promissory notes, Asset-based loans, Repurchase agreements, letters of credit

Short-term financing

Debentures

usually provide a fixed rate of interest for the lender, and this has to be paid before any dividends are issued to shareholders