SESSION:19 The Importance of Trade Credit and Working Capital in PlanningVideo Activity

Session:19 The Importance of Trade Credit and Working Capital in Planning

Video Activity

Principles of Finance | Leadership Development – Micro-Learning Session

Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-finance

How Companies Report Cash Flow

1 . Why isn’t the net income reported on a corporate balance sheet a good estimate of the increase in cash that occurred during the year?

2 . What is the difference between a corporate cash budget and a projected statement of cash flows?

Trade Credit and Interest Rates on Short-Term Borrowing

3 . Explain this statement: Accounts payable and accounts receivables are essentially financial opposites.

4 . Accounts payable is often called “interest-free financing.” As such, explain why a company would choose to pay the amount owed on its purchases of inventory 50 days early. Base your answer on these facts:

The annualized cost of forgoing an early payment discount is approximately 16 percent.
The company’s cost of borrowing short-term on a bank line of credit is 9 percent.