财务管理基础工业出版社13版Chap008-PPT

SourcesofShort TermFinancing 8 1 2 ChapterOutline TradecreditfromsuppliersBankloansCommercialpaperBorrowinglargeramountsUsinghedgingtooffsettherisk 1 3 FinancingArrangements Linesofcreditaresometimesreferredtoasarevolvingcreditfacilitywhereinterestcost IsbasedonLIBOR theLondonInterbankOfferedRate Isbasedonthecompany sseniorunsecuredcreditrating apercentagemarginPrimaryaimoftheborrowingfirms Minimizecost 1 4 TradeCredit Approximately40percentofshort termfinancingisintheformofaccountspayableortradecreditAccountspayableIsaSpontaneoussourceoffundsGrowsasthebusinessexpandsContractswhenbusinessdeclines 1 5 PaymentPeriod Tradecreditisusuallyextendedfor30 60daysExtendingthepaymentperiodtoanunacceptableperiodresultsin AlienatesuppliersDiminishedratingswithcreditbureausMajorvariableindeterminingthepaymentperiod Thepossibleexistenceofacashdiscount 1 6 CashDiscountPolicy AllowsreductioninpriceifpaymentismadewithinaspecifiedtimeperiodExample A2 10 net30cashdiscountmeans Reductionof2 iffundsareremitted10daysafterbillingFailuretodosomeansfullpaymentofamountbythe30thday 1 7 Net CreditPosition DeterminedbyexaminingthedifferencebetweenaccountsreceivableandaccountspayablePositiveifaccountsreceivableisgreaterthanaccountspayableandviceversaLargerfirmstendtobenetprovidersoftradecredit relativelyhighreceivables Smallerfirmsintherelativelyuserposition relativelyhighpayables 1 8 BankCredit Provideself liquidatingloansUseoffundsensuresabuilt inorautomaticrepaymentschemeChangesinthebankingsectortoday Centeredaroundtheconceptof fullservicebanking ExpandedinternationallytoaccommodateworldtradeandinternationalcorporationsDeregulationhascreatedgreatercompetitionamongotherfinancialinstitutions 1 9 PrimeRateandLIBOR PrimerateRateabankchargestoitsmostcreditworthycustomersIncreasesasacustomer screditriskincreasesLIBOR LondonInterbankOfferedRate Rateofferedtocompanies HavinganinternationalpresenceAbilitytousetheLondonEurodollarmarketforloans 1 10 PrimeRateversusLIBORonU S DollarDeposits 1 11 CompensatingBalances AfeechargedbythebankforservicesrenderedoranaverageminimumaccountbalanceWheninterestratesarelower thecompensatingbalancerisesRequiredaccountbalancecomputedonthebasisof PercentageofcustomerloansoutstandingPercentageofbankcommitmentstowardsfutureloanstoagivenaccount 1 12 MaturityProvisions TermloanCreditisextendedforonetosevenyearsLoanisusuallyrepaidinmonthlyorquarterlyinstallmentsOnlysuperiorcreditapplicants qualifyInterestratefluctuateswithmarketconditionsInterestratemaybetiedtotheprimerateorLIBOR 1 13 CostofCommercialBankFinancing Effectiveinterestonaloanisbasedonthe LoanamountDollarinterestpaidLengthoftheloanMethodofrepaymentDiscountedloan interestisdeductedinadvance effectiverateincreasesEffectiverate Interest Daysintheyear 360 Principal interestDaysloanisoutstanding 1 14 InterestCostswithCompensatingBalances Assumingthat6 isthestatedannualrateandthat20 compensatingbalanceisrequired Effectiveratewith Interestcompensatingbalances 1 c 6 7 5 1 0 2 Whendollaramountsareusedandthestatedrateisnotknown thefollowingcanbeusedforcomputation DaysinaEffectiveratewith Interest year 360 compensatingbalancesPrincipal CompensatingDaysloanisbalanceindollarsoutstanding 1 15 RateonInstallmentLoans InstallmentloansrequireaseriesofequalpaymentsovertheperiodoftheloanFederallegislationprohibitsamisrepresentationofinterestrates howeverthismaybemisused Effectiverateoninstallmentloan 2 Annualno ofpayments Interest Totalno ofpayments 1 Principal 1 16 AnnualPercentageRate TruthinLendingActof1968requirestheactualAPRtobegiventotheborrowerAnnualpercentagerule ProtectsunwaryconsumerfrompayingmorethanthestatedrateRequirestheuseoftheactuarialmethodofcompoundedinterestduringcomputationLendermustcalculateinterestfortheperiodontheoutstandingloanbalanceatthebeginningoftheperiodItisbasedontheassumptionsofamortization 1 17 TheCreditCrunchPhenomenon TheFederalReservetightensthegrowthinthemoneysupplytocombatinflation theaffect DecreaseinfundstobelentandanincreaseininterestratesIncreaseindemandforfundstocarryinflation ladeninventoryandreceivablesMassivewithdrawalsofsavingsdepositsatbankingandthriftinstitutions fuelledbythesearchforhigherreturnsCreditconditionscanchangedramaticallyandsuddenlydueto UnexpecteddefaultsEconomicrecessionsChangesinmonetarypolicyOthereconomicsetbacks 1 18 FinancingThroughCommercialPaper Short term unsecuredpromissorynotesissuedtothepublicFinancepaper directpaperDealerpaperAsset backedcommercialpaperBook entrytransactionsComputerizedhandlingofcommercialpaper wherenoactualcertificateiscreated 1 19 TotalCommercialPaperOutstanding 1 20 AdvantagesofCommercialPaper MaybeissuedatbelowtheprimeinterestrateNoassociatedcompensatingbalancerequirementsAssociatedprestigeforthefirmtofloattheirpaperinanelitemarket 1 21 DisadvantagesofCommercialPaper Manylendershavebecomerisk aversepostamultitudeofbankruptciesFirmswithdowngradedcreditratingdonothaveaccesstothismarketThefundsgenerationassociatedwiththisislesspredictableLacksthedegreeofcommitmentandloyaltyassociatedwithbankloans 1 22 ForeignBorrowing EurodollarloanDenominatedindollarsandmadebyforeignbankholdingdollardepositsShort termtointermediatetermsinmaturityLIBORisthebaseinterestpaidonloansforcompaniesofthehighestqualityOneapproach borrowfrominternationalbanksinforeigncurrencyBorrowingfirmmaysuffercurrencyrisk 1 23 UseofCollateralinShort TermFinancing Securedcreditarrangementwhen CreditratingoftheborroweristoolowNeedforfundsisveryhighPrimaryconcern whethertheborrowercangenerateenoughcashflowtoliquidatetheloanwhendueUniformCommercialCodeStandardizesandsimplifiestheproceduresforestablishingsecurityagainstaloan 1 24 AccountsReceivableFinancing Includes PledgingaccountsreceivablesFactoringoranoutrightsaleofreceivablesAdvantage PermitsborrowingtobetieddirectlytothelevelofassetexpansionatanypointoftimeDisadvantage Relativelyexpensivemethodofacquiringfunds 1 25 PledgingAccountsReceivables LendingfirmdecidesonthereceivablesthatitwilluseasacollateralLoanpercentagedependsonthefirms ThefinancialstrengthThecreditworthinessInterestrateiswellabovetheprimerateComputedagainstthebalanceoutstanding 1 26 FactoringReceivables ReceivablesaresoldoutrighttothefinancecompanyFactoringfirmsdonothaverecourseagainstthesellerofthereceivablesFinancecompaniesmaydoallorpartofthecreditanalysistoensurethequalityoftheaccountsFactoringfirmis Absorbingrisk forwhichafeeiscollectedActuallyadvancingfundstotheseller paidalendingrate 1 27 FactoringReceivables Example If 100 000amonthisprocessedata1 commission anda12 annualborrowingrate thetotaleffectivecostiscomputedonanannualbasis1 Commission1 Interestforonemonth 12 annual 12 2 Totalfeemonthly2 MonthlyX12 24 annualrateTheratemaynotbeconsideredhighduetofactorsofrisktransfer aswellasearlyreceiptoffundsItalsoallowsthefirmtopassonmuchofthecredit checkingcosttothefactor 1 28 AssetBackedPublicOffering ThereisanincreasingtrendinpublicofferingsofsecuritybackedbyreceivablesascollateralInterestpaidtotheownersistaxfreeAdvantagestothefirm ImmediatecashflowHighcreditratingofAAorbetterProvidesCorporateliquidityShort termfinancingDisadvantagetothebuyer Riskassociated receivablesactuallybeingpaid 1 29 InventoryFinancing Factorsinfluencinguseofinventory MarketabilityofthepledgedgoodsAssociatedpricestabilityPerishabilityoftheproductDegreeofphysicalcontrolthatthelendercanexerciseovertheproduct 1 30 StagesofProduction StagesofproductionRawmaterialsandfinishedgoodsusuallyprovidethebestcollateralGoodsinprocessmayqualifyonlyasmallpercentageoftheloan 1 31 NatureofLenderControl ProvidesgreaterassurancetothelenderbuthigheradministrativecostsTypesofArrangements BlanketinventoryliensLenderhasageneralclaimagainstinventoryTrustreceipts floorplanning Aninstrument theproceedsfromsalesgotothelenderWarehousingAreceiptissue goodscanbemovedonlywiththelender sapprovalPublicwarehousingFieldwarehousing 1 32 AppraisalofInventoryControlDevices Well maintainedcontrolmeasuresinvolves SubstantialadministrativeexpensesRaiseoverallcostofborrowingExtensionoffundsiswellsynchronizedwithneeds 1 33 HedgingtoReduceBorrowingRisk EngaginginatransactionthatpartiallyorfullyreducesapriorriskexposureThefinan