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After reading this chapter, you will be able to: Define current assets and describe some common methods of managing them; identify some sources of short-term financing (current liabilities); summarize the importance of long-term assets and capital budgeting; specify how companies finance their operations and manage fixed assets with long-term liabilities, particularly bonds;. | Chapter Sixteen Financial Management and Securities Markets Types of Current Assets and Current Liabilities Current assets (Financial resources that can be converted to cash within a year) Current Liabilities (Short-term debt obligations that must be paid within a year) 16-1 Cash Marketable securities Accounts receivable Inventory Accounts payable Wages payable Taxes payable Notes (loans) payable Short-term Investment Possibilities for Idle Cash 16-2 Type of Security Maturity Issuer of Security Interest Rate (March/02) Treasury Bill 1 month Bank of Canada 1.99% Treasury Bill 3 months Bank of Canada 2.01% Treasury Bill 6 months Bank of Canada 2.27% Treasury Bill 1 year Bank of Canada 2.88% Govt. of Canada Bonds 2 years Govt. of Canada 3.70% Short Term Deposits 30-59 days Banks, Trust and Loan cos. 0.90 – 1.90 % Short Term Deposits 60-99 days Banks, Trust and Loan cos. 0.90 – 1.90 % Short Term Deposits 90-119 days Banks, Trust and Loan cos. 0.90 – 1.90 % Fixed Term Deposits 1 year . | Chapter Sixteen Financial Management and Securities Markets Types of Current Assets and Current Liabilities Current assets (Financial resources that can be converted to cash within a year) Current Liabilities (Short-term debt obligations that must be paid within a year) 16-1 Cash Marketable securities Accounts receivable Inventory Accounts payable Wages payable Taxes payable Notes (loans) payable Short-term Investment Possibilities for Idle Cash 16-2 Type of Security Maturity Issuer of Security Interest Rate (March/02) Treasury Bill 1 month Bank of Canada 1.99% Treasury Bill 3 months Bank of Canada 2.01% Treasury Bill 6 months Bank of Canada 2.27% Treasury Bill 1 year Bank of Canada 2.88% Govt. of Canada Bonds 2 years Govt. of Canada 3.70% Short Term Deposits 30-59 days Banks, Trust and Loan cos. 0.90 – 1.90 % Short Term Deposits 60-99 days Banks, Trust and Loan cos. 0.90 – 1.90 % Short Term Deposits 90-119 days Banks, Trust and Loan cos. 0.90 – 1.90 % Fixed Term Deposits 1 year Banks, Trust and Loan cos. 1.30 – 2.50 % Fixed Term Deposits 2 years Banks, Trust and Loan cos. 2.25 – 3.37 % Bank Loans Line of Credit An arrangement by which a bank agrees to lend a specified amount of money to an organization upon request Secured loans Loans backed by collateral that the bank can claim if the borrowers do not repay the debt Unsecured loans Loans backed only by the borrowers’ good reputation and previous credit rating 16-3 American Express extends lines of credit to its Small Business Services customers. 16-4 Qualitative Assessment of Capital Budgeting Risk 16-5 Introduce a New Product in a Familiar Area Introduce a New Product in Foreign Markets (risk depends on stability of country) Expand into a New Market Add to a Product Line Buy New Equipment for an Established Market Repair Old Machinery Highest Risk Lowest Risk The Impact of Organizational Performance on Investment Decisions 16-6 15% 14% 12% 14% Types of Bonds Unsecured Debentures, or bonds, that are not backed .
