...short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit. An increase in working capital indicates that the business has either increased current assets (that it has increased its receivables, or other current assets) or has decreased current liabilities—for example has paid off some short-term creditors. Implications on M&A: The common commercial definition of working capital for the purpose of a working capital adjustment in an M&A transaction (i.e. for a working capital adjustment mechanism in a sale and purchase agreement) is equal to: Current Assets – Current Liabilities excluding deferred tax assets/liabilities, excess cash, surplus assets and/or deposit balances. Cash balance items often attract a one-for-one, purchase-price adjustment. Working capital management Corporate finance Looking north from the Empire State Building, New York City, 2005 Working capital Cash conversion cycle Return on capital Economic Value Added Just-in-time Economic order quantity Discounts and allowances Factoring Capital budgeting Capital investment decisions The investment decision The financing decision Sections Managerial finance Financial accounting Management accounting Mergers and acquisitions Balance sheet analysis Business plan Corporate action Societal components...
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...FIN 100 WEEK 8 ASSIGNMENT 2 – BUSINESS FINANCING AND THE CAPITAL STRUCTURE To purchase this Click here: http://www.activitymode.com/product/fin-100-week-8-assignment-2-business-financing-and-the-capital-structure/ Contact us at: SUPPORT@ACTIVITYMODE.COM FIN 100 Week 8 Assignment 2 - Business Financing and the Capital Structure Businesses have to make many financial decisions that have a direct impact on operations and the ability to successfully compete in the marketplace. Base your writing on the information from the course coupled with information located in the Strayer databases or Internet. Write a three to four (3-4) page paper in which you: 1. Explain the process of financial planning used to estimate asset investment requirements for a corporation. Explain the concept of working capital management. Identify and briefly describe several financial instruments that are used as marketable securities to park excess cash. 2. Assume that you are financial advisor to a business. Describe the advice that you would give to the client for raising business capital using both debt and equity options in today’s economy. 3. Explain why a business may decide to seek capital from a foreign investor indicating the risk and rewards for such a decision. Provide support for rationale. More Details hidden... Click Here to Buy this; http://www.activitymode.com/product/FIN 100 Week 8 Assignment 2 - Business Financing and the Capital Structure Activity mode aims to provide...
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...Determinants of firm Short term Financing behavior: Evidence from Listed firms in Pakistan Muhammad Shahbaz 0132-BH-BAF-10 Faizan Saeed 1091-BH-BAF-10 Session: 2010---2014 Department Of Economics GC University, Lahore Determinants of firm short term financing behavior:Evidence of Listed firms in Pakistan | Submitted to GC University, Lahore in Partial fulfillment to the requirement For the award of degree of BS (Hons) In Business Accounting and Finance By Muhammad Shahbaz Faizan Saeed Roll No | 0132 | BH | BAF | 10 | Roll No | 1091 | BH | BAF | 10 | Session: 2010-2014 Department Of Economics GC University, Lahore RESEARCH COMPLETION CERTIFICATE It is certified that the research contained in this dissertation titled “Determinants of firm short term Financing behavior: Evidence from Listed Firms in Pakistan”, has been carried out and completed by Mr. Muhammad Shahbaz (Roll No 0132-BH-BAF-10) and Mr. Faizan Saeed (Roll No 1091-BH-BAF-10) under my guidance and supervision. The quantum and the quality of the work, contained in this dissertation, are adequate for the award of Degree of BS (Hons.) in Business Accounting and Finance Date: ______________________ ___________________ Mr. Nisar Ahmed Supervisor Department of Economics ...
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...Furniture Store and Pro Forma Analysis Guillermo Navellez, once the owner of the largest flourishing furniture store in Sonora, Mexico faces globalization and the emergence of foreign competition. Inexpensive labor and the abundance of timber in Sonora are major factors, which contributed to the manufacturing of the store’s furniture. Guillermo faces new competition that possesses advanced technology with the ability to manufacture faster and at lower costs. With the emergence of this sophisticated technology, the company requires change to cease the decease of revenue and sales (University of Phoenix, 2012). Guillermo hires Jevaloch Consulting Firm, Incorporated to examine his current business forecast and choose strategies in optimal working capital. Additionally, Jevaloch will also provide an efficient pro forma budget and recommend an implementation plan. Guillermo Furniture Forecast Forecasting is an important tool for estimating the future market value for the business. Jevaloch consultants began the examination of Guillermo Furniture by reviewing a six month Figure 1.1 Budget Sales Forecasts. Figure 1.2 Actual Sales Forecasts. projection of sales forecast for units of chairs, the top sales item for the store, sold from January to June 2010. Figures 1.1 and 1.2 are representative of the budget unit sales and actual unit sales for Guillermo Furniture. The average monthly demands for the budget sales is 18,014/6 = 3002.3 and 17,997/6 = 2999.5 for actual sales. ...
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...Investment Management and Financial Innovations, Volume 7, Issue 2, 2010 Faris Nasif Al-Shubiri (Jordan) Analysis of the relationship between working capital policy and operating risk: an empirical study on Jordanian industrial companies Abstract The study analyzes the working capital management practices and their impact on profitability and risk of industrial Jordanian firms for the period of 2004 to 2007. The total sample of the study consists of 59 industrial firms listed on Amman Stock Exchange. The working capital management practices examine the impact of aggressive/conservative working capital investment and financing policy and analyze through cross-sectional regression models the relationship between working capital policies and profitability as well as risk of the firms. Efficient management of working capital is a fundamental part of the overall corporate strategy aiming to create the shareholders’ value. Firms try to keep an optimal level of working capital that maximizes their value. The optimal level of working capital is determined to a large extent by the methods adopted for the management of current assets and liabilities. It requires continuous monitoring to maintain proper level in various components of working capital, i.e. cash receivables, inventory and payables, etc. The result indicates a negative relationship between the profitability measures of firms and degree of aggressiveness of working capital investment and financing policy. The firms yield negative...
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...nontraditional sources of capital—and face tougher loan terms.” Corporate financial management deals with decisions of a firm related to investment, financing, and dividend. To carry on business, a firm invests in tangible assets like plant and machinery, buildings, and intangible assets like goodwill and patents. This comprises of investment decision. These assets do not come free; one has to pay for them, so a company needs to tap various sources of funds including promoter’s contribution. The investment in assets generates revenues and cash flows for a specific period. The managers of the company can either retain cash with the company for further investment of distribute to owners of the company – the shareholders. Concepts Reinforced Profit maximization, social welfare and growth are the three principal competitors to the wealth maximization role. Profit maximization requires managers to keep all expenses low. Businessmen are supposed to be socially responsible. They did not live in an ethical vacuum. Moral standards may change as society evolves. Shareholder wealth maximization rule is based on the assumption that other investor groups in the company are unaffected by the latter’s decision. Potential conflict of interest exists between shareholders and bondholders, managers and shareholders, majority and minority shareholders. So, maximizing wealth of one group could be achieved or the expenses of other groups. Applications to Financial Management Capital Asset Pricing Model...
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... | Financial Structure is the framework of various types of financing employed by a Oil company to acquire and support resources necessary for its operations, commonly, it comprises of stockholders’ investments, long- term loans, short-term loans and short-term liabilities as reflected on the right hand side of the Oil company balance sheet. Financial Structure is different from capital structure in the sense that it also includes current liabilities. Therefore, financial structure is the combination of two main components 1) Capital structure and 2) Current liabilities. To provide an understanding of the concept of financial structure in Oil sector specifically capital structure of Padma Oil Company Limited, the balance sheet, debt and equity, working capital, cost of capital and opportunity cost are need to be explained. The capital structure is how an Oil company finances its overall operations and growth by using different sources of funds. It is a mix of a company’s long-term debt, specific short-term debt, common equity and preferred equity. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered part of the capital structure. Working capital is defined as the difference between current assets and current liabilities. Current assets are the most liquid...
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...Working Capital Structure and Financing Pattern of Mauritian SMEs Kesseven Padachi*; C. Howorth[1]; M. S. Narasimhan[2] and R. Durbarry3 *School of Business, Management and Finance University of Technology, Mauritius La Tour Koenig, Pointe – aux – Sables, Mauritius kpadachi@utm.intnet.mu ABSTRACT The competitive nature of the business environment requires firms to adjust their strategies and adopt good financial policies to survive and sustain growth. Most firms have an important amount of cash invested in current assets, as well as substantial amounts of current liabilities as a source of financing. This paper therefore analyses the working capital structure and financing pattern of small to medium-sized Mauritian manufacturing firms, using primarily secondary data. Structural differences in working capital and the financing pattern of the sample firms are analysed and the results showed significant structural changes over the study period. The research finding revealed disproportionate increase in current asset investment in relation to sales resulting in sharp decline in working capital turnover. The analysis also revealed an increasing trend in the short-term component of working capital financing; in particular trade credit and other payables have financed the major part of working capital. This over-concentration on short-term funds is a reality of the SMEs as they often faced difficulties in raising finance and they are viewed to be informationally opaque....
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...Do financial management decisions influence firm value? Table of contents 1. Introduction 3 2. Background overview 3 2.1 Financial management decisions 3 2.1.1 Capital budgeting 4 2.1.2 Capital structure 4 2.1.3 Working capital management 5 2.1.4 Relationship 5 2.2 Efficiency of the capital markets 5 3. Empirical study 6 3.1 Select a FTSE 100 company—HSBC Holdings PLC 6 3.2 Financial decisions taken over in the past three years 7 3.3 Appraise the financial management decisions 8 3.4 Impacts the financial management decisions have on the company’s value 9 3.5 Analysis 10 4. Conclusion 11 References 12 Bibliography 13 1. Introduction The financial management is a comprehensive and complex work to plan the expenditure and revenue in detail, so as to accumulate more profit guarantee the future expansion and daily normal operation. Financial management decisions are the strategies to achieve their financial objectives which mainly include capital budgeting, capital structure, and working capital management. Scholars have been devoting themselves into this discipline for a long time, especially the research of capital structure. Modigliani and Miller (1958) even got their Nobel Prize in economics for their study of the relationship between capital structure and corporate value, with and without corporate tax. But whether financial management decisions influence the firm value and how policies affect it are still open for discussion...
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...CHAPTER-I INTRODUCTION 1.1 MEANING OF WORKING CAPITAL “Working Capital is the Life-Blood and Controlling Nerve Center of a business” Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash. Current assets and current liabilities include three accounts which are of special importance. These accounts represent the areas of the business where managers have the most direct impact: Accounts receivable (current asset) Inventory (current assets), Accounts payable (current liability) ...
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...Assignment #2: Business Financing and the Capital Structure Marquis C. Saddler Professor Jason Powers FIN100 December 1, 2013 Business Financing and the Capital Structure Explain the process of financial planning used to estimate asset investment requirements for a corporation. Explain the concept of working capital management. Identify and briefly describe several financial instruments that are used as marketable securities to park excess cash. A corporation having a financial plan in place to estimate its assets investment requirement is important. It’s important because their assets can be used as an advantage for securing loans and can be used to calculate their ability to repay debts. A corporation’s sales are a key compelling force of future asset requirements. As sales steadily increase it creates a need for increase in assets. In other words, asset needs have a propensity to stem from sales increases. For example, if you were to estimate that sales for a corporation will be $40million for a given year, and it is know that in that specific industry that assets have a propensity to be about 40% of sales, then you could estimate that the corporation’s asset requirement will be $16million (40% x $40,000,000). Another good way to estimate asset requirements is to use the percentage-of-sales technique, which is a technique use for forecasting financial data. “Working capital refers to that part of the firm’s capital, which is required for financing short-term or current...
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...Recommend a capital structure approach that maximizes shareholder return In order for a company to acquire the necessary resources for its operation, it must have the right composition of capital structure financing. A capital structure is made of up of two types of financing, namely debt and equity. Debt comes in various forms such as bond and long term notes payable and equity can be either common stocks or preferred stock. Both methods of financing have their advantages and disadvantages. It is the responsibility of management to ensure that they choose the right mix of debt and or equity so that there is a balance between the risks and reward. In finding the perfect capital structure in terms of risk/rewards management has to take into consideration interest payment, the company’s cash flows, dividends payment, the expected return on investment and so on. ("Capital structure decision," 2010) Competition Bikes Inc. has several alternatives for its capital structure mix in financing the Canadian expansion. Below is the data for the capital structure mix. Based on the capital structure analysis we see that Competition Bikes Inc has five different alternatives namely: 1. A capital structure consisting of only 9% bonds. 2. A capital structure consisting of only stocks, 50% preferred and 50% common stock. 3. There is a mix of 20% bond and 80% common stock 4. There is also a mix of 40% bond and 60% common stock. 5. The final mix is 60% bond and 40% common...
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...1. Discuss the working capital management? Working capital management Working capital management refers to the administration of current assets and current liabilities. Liquidity management involves the planned acquisition and use of liquid resources over time to meet cash obligations as they become due. The firm’s liquidity is measured by liquidity ratio such as current ratio, quick ratio, cash ratio. Financing current asset Current Assets require financing by use of either current funds or long term funds. There are three major approaches to financing current assets. These are: a) Matching Approach Under this approach, the firm adopts a financial plan which involves the matching of the expected life of assets with the expected life of the source of funds raised to finance assets. The firm, therefore, uses long term funds to finance permanent assets and short-term funds to finance temporary assets. Permanent assets refer to fixed assets and permanent current assets. b) Conservative Approach A firm that follows the conservative approach depends more on long-term funds for financing needs. The firm, therefore, finances its permanent assets and a part of its temporary assets with long-term funds. Short-term funds are cheaper than long-term funds. However, short-term funds must be repaid within the year and therefore they are highly risky. C) Aggressive Approach This is a high risky strategy of working capital financing wherein short term finances are utilized...
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...Question-1: What is finance? Ans: Finance is the life blood of every corporation. In the era of modern trade and commerce, business firm have to decide from where they will raise fund, where they will invest and how much of the profit will be distributed among the shareholders. “Finance” Came from Latin word “finis” means “dealing with the money”.finace is called the art and science of managing money. At the micro level, finance is the study of financial planning, asset management and fund raising for business and financial institutions. At the macro level, finance is the study of financial institution and financial markets and how they operate within the financial systems in both the domestic and global economics. Scholar’s view: “Finance consists of providing and utilizing the money, capital rights, credit and funds of any kind which are employed in the operation of an enterprise.” _George R Terry “Finance is concerned with the process, institutionsmarkets and instruments involved in the transfer of money among and between individuals, business and governments”. _Lawrence J Gitman From the above discussion, it can be said that finance is the process of financial planning, identification of sources of fund raising, investment of fund, protection of fund, distribution...
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...MP A R Munich Personal RePEc Archive Financial management practices and their impact on organizational performance Babar Zaheer Butt and Ahmed Imran Hunjra and Kashif-Ur- Rehman Foundation University, Rawalpindi, Pakistan, Iqra University Islamabad Campus, Pakistan 2010 Online at http://mpra.ub.uni-muenchen.de/32685/ MPRA Paper No. 32685, posted 15. August 2012 01:05 UTC World Applied Sciences Journal 9 (9): 997-1002, 2010 ISSN 1818-4952 Financial Management Practices and Their Impact on Organizational Performance 1 Babar Zaheer Butt, 2Ahmed Imran Hunjra and 2Kashif-Ur-Rehman 1 2 Foundation University, Rawalpindi, Pakistan Iqra University Islamabad Campus, Pakistan Abstract: This study measures the relationship between organizational performance and financial management practices like capital structure decision, dividend policy, investment appraisal techniques, working capital management and financial performance assessment in Pakistani corporate sector. Sample of the study consisted of forty companies operating in Pakistan, related to different sectors and listed at Karachi Stock Exchange. The finance executives and financial analysts of the companies responded to questionnaire that identified through company profiles and references. The questionnaires were self administered to collect the data from respondents. The results show a positive and significant relationship between financial management practices and organizational performance in Pakistani corporate sector...
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