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Financing Options Xyz Corp

In: Business and Management

Submitted By nms2015
Words 790
Pages 4
Financing Options for XYZ Corporation
Nicole Byes
FIN / 410
August 03, 2015
Ruth Smith

As corporations anticipate growth and inventory increase over time their financial managers need to understand the need for inventory financing and inventory management (Block, Hirt, & Danielson, 2009). Looking at the long-term trend XYZ Corporation assets are likely to increase over time. The key to current asset planning is the ability of management to forecast sales accurately and match the production schedules with the sales forecast. "Financial forecasting is essential to the strategic growth of a business. The process of forecasting forces a business to consider seasonal and other effects on cash flow. In essence, financial forecasting allows the financial manger to anticipate events before they occur, specifically the need for raising funds externally (Block, Hirt, & Danielson, 2009). The financial manger's selection of external sources of funds to finance assets may be one of the firm's most important decisions.
"The axiom that all current assets should be financed by current liabilities (accounts payables, bank loans, etc.) is subject to challenge when one sees the permanent buildup that can occur in current asset (Block, Hirt, & Danielson, 2009)". According to our resources, XYZ Corporation is experiencing an average collection period of 120 days. The industry average is about 75 days. The corporation has also experienced an increase in its business in the last two years and has been buying more inventories. Senior management wants to increase the amount of permanent inventory stock, and projects an increase in the accounts receivable balance. The corporation is considering two financing options: a 7-year loan at the rate of 8.5%; and a 90 note at prime plus 2%, to help the firm with liquidity challenges. The corporation may want to finance its...

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