PPT 6-6 - McGraw

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PPT 6-6 - McGraw
Chapter
6
Working Capital and the
Financing Decision
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-1
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-2
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-3
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-4
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-5
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-7
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-6
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-8
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-9
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-9
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-10
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-11
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-11
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-12
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-12
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
PPT 6-13
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 6 - Outline





LT 6-1
What is Working Capital Management?
Term Structure of Interest Rates
U.S. Government Securities
Short-Term vs. Long-Term Financing
Working Capital Financing Plans
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Working Capital Management



LT 6-2
Working Capital Management is controlling and managing
the current assets of a firm
Most time-consuming job of a financial manager
Crucial to long-term success or failure of a business
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Term Structure of Interest Rates




LT 6-3
The Term Structure of Interest Rates is also known as the
Treasury Yield Curve
Graph showing the relationship between S/T and L/T interest
rates at different maturities
Reported daily in The Wall Street Journal
Normal shape is an upward sloping curve, indicating that
L/T interest rates are greater than S/T interest rates
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
U.S. Government Securities
LT 6-4
Treasury Bills (T-Bills) = short-term IOUs
3 months to 1 year in maturity
Treasure Notes = intermediate term
1 to 10 years in maturity
Treasury Bonds = long term
10 to 40 years in maturity
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Short-Term vs. Long-Term Financing




LT 6-5
Short-term financing is less expensive but riskier
Long-term financing is more expensive but less risky (or
safer)
Firm must decide the appropriate “mix”
Similar to the risk-return trade-off
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Working Capital Financing Plans

LT 6-6
An aggressive (risky) firm:
– S/T financing and low liquidity

A conservative (safe or cautious) firm:
– L/T financing and high liquidity

A moderate (balanced) firm:
– S/T financing and high liquidity
– L/T financing and low liquidity

OR
An appropriate strategy is determined based on the
company’s tolerance for risk
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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