Chương 14 - Current liabilities management. In this chapter, the learning objectives are: Review the key components of credit terms, accounts payable, and the procedures for analyzing them; understand the effects of stretching accounts payable on their cost and the use of accruals; describe interest rates and the basic types of unsecured bank sources of short-term loans;. | Chapter 14 Current Liabilities Management Learning Goals Review the key components of credit terms, accounts payable, and the procedures for analyzing them. Understand the effects of stretching accounts payable on their cost and the use of accruals. Describe interest rates and the basic types of unsecured bank sources of short-term loans. Learning Goals (cont.) Discuss the basic features of commercial paper and the key aspects of international short-term loans. Explain the characteristics of secured short-term loans and the use of accounts receivable as short-term loan collateral. Describe the various ways that inventory can be used as short-term loan collateral. Spontaneous Liabilities Spontaneous liabilities arise from the normal course of business. The two major spontaneous liability sources are accounts payable and accruals. As a firm’s sales increase, accounts payable and accruals increase in response to the increased purchases, wages, and taxes. There is normally no explicit . | Chapter 14 Current Liabilities Management Learning Goals Review the key components of credit terms, accounts payable, and the procedures for analyzing them. Understand the effects of stretching accounts payable on their cost and the use of accruals. Describe interest rates and the basic types of unsecured bank sources of short-term loans. Learning Goals (cont.) Discuss the basic features of commercial paper and the key aspects of international short-term loans. Explain the characteristics of secured short-term loans and the use of accounts receivable as short-term loan collateral. Describe the various ways that inventory can be used as short-term loan collateral. Spontaneous Liabilities Spontaneous liabilities arise from the normal course of business. The two major spontaneous liability sources are accounts payable and accruals. As a firm’s sales increase, accounts payable and accruals increase in response to the increased purchases, wages, and taxes. There is normally no explicit cost attached to either of these current liabilities. Spontaneous Liabilities: Accounts Payable Management Accounts payable are the major source of unsecured short-term financing for business firms. The average payment period has two parts: The time from the purchase of raw materials until the firm mails the payment Payment float time (the time it takes after the firm mails its payment until the supplier has withdrawn spendable funds from the firm’s account In the demonstration of the cash conversion cycle in Chapter 14, MAX Company had an average payment period of 35 days, which resulted in average accounts payable of $467,466. Thus, the daily accounts payable generated is $13,356. If MAX were to mail its payments in 35 days instead of 30, it would reduce its investment in operations by $66,780. If this did not damage MAX’s credit rating, it would clearly be in its best interest to pay later. The firm’s goal is to pay as slowly as possible without damaging its credit rating. .
