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Financing the Short Term Obligations of The Business
Finance & Accounting
Pages 5 (1255 words)
Title: Financing the Short Term Obligations of the Business Name: Group: Date: Introduction The purpose of this report is of twofold: to highlight and understand four short term finance sources available to business in order to fulfil its short term business commitment; to practically apply the use of liquidity ratios and the efficiency ratios to comprehend how businesses use these sources in order to meet their day-to-day operations requirements.
And, the day-to-day operations include payment of wages to employees and payment for inventory as well. Technically speaking, time duration covering the definition of short term finance is of one year. Any short term finance must be repaid within one year period. Following are the four different sources of short term finance available to business: Overdrafts Trade credit Short term loans Lease finance Overdrafts Overdraft means the amount overdrawn from bank (Siddiqui & Siddiqui 2007).Overdrafts are deficits which are financed by the bank. The overdrafts are results of payments exceeding income in the current account. Overdrafts can easily be availed and remain flexible with regard to the amount borrowed at any point of time and only sum of interest is paid when the account is overdrawn. A particular overdraft limit is set that should not be surpassed. Repayment is carried out on demand and security depends on the facility size or overdraft limit. Trade Credit Trade credit may be defined as credit which is granted on account of transactions of one firm with other firms (Ball 2009). Trade credit is a type of short term loan. ...
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