An important working capital policy decision is concerned with the level of investment in current assets. Determining the optimal level of current assets involves a trade off between costs that rise with current assets and costs that fall with current assets. The former are referred to as carrying costs and the latter as shortage costs.

After establishing the level of current assets, the firm must determine how these should be financed. What mix of long term capital and short term debt should the firm employ to support its current assets?

For the sake of simplicity assets are divided into two classes, viz. fixed assets and current assets. Fixed assets are assumed to grow at a constant rate which reflects the secular rate of growth in sales. Current assets, too, are expected to display the same long term rate of growth; however, they exhibit substantial variation around the trend line, thanks to seasonal (or even cyclical) patterns in sales and/or purchases.

The investment in current assets may be broken into two parts: permanent current assets and temporary current assets. The former represents what the firm requires even at the bottom of its sales cycle.
The latter reflects a variable component that moves in line with seasonal fluctuations.

Several strategies are available to a firm for financing its capital requirements. Three strategies are illustrated by lines A, B, and C below.

Strategy A: Long term financing is used to meet fixed asset requirement as well as peak working capital requirement. When the working capital requirement is less than its peak level, the surplus is invested in liquid assets (cash and marketable securities).

Strategy B: Long term financing is used to meet fixed assets requirement, permanent working capital requirement, and a portion of fluctuating working capital requirement. During seasonal swings, short-term financing is used during seasonal down swing surplus is invested in liquid assets.

Strategy C: Long term financing is used to meet fixed asset requirement and permanent working capital requirement. Short term financing is used to meet fluctuating working capital requirement.

 Matching Principle:

According to this principle, the maturity of the sources of financing should match the maturity of the assets being financed. This means that fixed assets and permanent current assets should be supported by long term sources of finance whereas fluctuating current assets must be supported by short term sources of finance.

The rationale for the matching principle is fairly straightforward. If a firm finances a long term asset (say, machinery) with a short term debt (say, commercial paper), it will have to periodically refinance the asset. Whenever the short term debt falls due, the firm has to re-finance the assets. This is risky as well as inconvenient. Hence, it makes sense to ensure that the maturity of the assets and the sources of financing are properly matched.

Operating cycle and cash cycle:

The investment in working capital is influenced by four key events in the production and sales cycle of the firm:

1. Purchase of raw materials
2. Payment of raw materials
3. Sale of finished goods
4. Collection of cash for sales

The firm begins with the purchase of raw materials which are paid for after a delay which represents the cost payable period. The firm converts the raw material to finished goods and then sells the same. The time lag between the purchase of raw materials and the sale of finished goods is the inventory period. Customers pay their bills sometimes after the sales. The period that elapses between the date of sales and the date of collection of receivables is the accounts payable period (debtor’s period).

The time that elapses between the purchase of raw materials and the collection of cash for sales is referred to as the operating cycle, whereas the time between the payment for raw materials purchases and the collection of cash for sales is referred to as the cash cycle. The operating cycle is the sum of the inventory period and the accounts receivable period, whereas the cash cycle is equal to the operating cycle less, the accounts payable period.

From the financial statements of the firm, we can estimate the Raw material Holding Period, inventory period, the accounts receivable period, and the accounts payable period.

Dr.R.SRINIVASAN is a Post graduate in commerce and Management. He received his doctoral degree from Alagappa University in 1997. He is now Working as an ASSOCIATE PROFESSORin Post graduate and Research Department of Corporate Secretaryship at Bharathidasan Government College for Women (Autonomous), Pondicherry University, Puducherry.He currently teaches Accounting ,financial management and Research Methodology Subjects. Before Joining BGCW, he was teaching in SNR College, Coimbatore, Sindhi college, Chennai& T.S.Narayanasamy College, Chennai for eight years. He was with the industry for a short term at Salzar Electronics Pvt. Ltd, Coimbatore. He has about 20 years of teaching experience and having research experience of 15 years. His interests are in Accounting and finance, Capital Market, Quantitative Methods. He underwent the Faculty Development Programme at Indian Institute of Management Ahmedabad during 2000-01. He has presented 20 papers in national and international conferences and has published twenty papers in the areas of Finance and Human resource Management in National Journals. Co-authored a book titled, ‘Investors Protection, published by Raj Publications, New Delhi He has delivered lectures in contemporary finance topics at Pondicherry University. He is involved in consultancy projects for Godrej Saralee, Chennai in the areas of Statistical Applications. He has supervised a number of research projects in the area of corporate finance and Human Resource Management. He is the Board of examiner in corporate Secretaryship and Management for the past two decades.
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Article Source:http://www.articlesbase.com/credit-articles/current-assets-financingneed-for-credit-administration-1522224.html

In researching credit repair – e.g. how one can go about fixing their own credit score, we came across some very interesting facts.  A lot of people, even very learned people, are unaware that banks are not lending because they are just not seeing credit-worthy borrowers. 

Banks are in the lending business and thus want to lend money.  But, they also have rules and policies that must be met; rules that advert borrower risks – most related to past credit histories.

Now, based on this lack of credit-worthy borrowers there are a plethora of companies cropping up that tout they can fix your credit score or credit history quickly and easily if you just merely pay them an up front fee.

In researching this market, one of the first sites we came across was from the Federal Trade Commission’s (FTC) website.  In the first few paragraphs, we can across the following statements which made us take notice:

“You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail, and maybe even calls offering credit repair services. They all make the same claims:

“Credit problems? No problem!”

“We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”

“We can erase your bad credit — 100% guaranteed.”

“Create a new credit identity — legally.”

The Federal Trade Commission further says do yourself a favor and save some money, too. Don’t believe these claims: they’re very likely signs of a scam. Indeed, attorneys at the nation’s consumer protection agency say they’ve never seen a legitimate credit repair operation making those claims. The fact is there’s no quick fix for credit-worthiness. You can improve your credit report legitimately, but it takes time, a conscious effort, and sticking to a personal debt repayment plan.

There use to be a time in this country where you could get a deal done with a handshake.  No more.  Your credit score is the new handshake.  And, if you want the deal, your handshake cannot be limp, weak or sweaty – which means your credit needs to be strong and confident.

In business, not only do you need a strong credit score to obtain the capital needed to start, run and grow your business but many customers (especially large national companies or government entities) will pull your credit histories before doing business with you.  Further, many vendors or suppliers will pull your credit reports before sending the materials you need to do business.  One of the greatest financing vehicles a small business can utilize is trade credit.  You receive the materials you need for your business from your vendors and supplier, but with trade credit, you don’t have to pay for those goods until you have had the time to add value and sell those goods and service to your customers.  Thus, you are not out the expense of these goods until you have the revenue from your customers to cover their costs.

The bottom line is to fix your own credit – you would not believe the number of doors that will open to you and your business if you can create and maintain a high personal credit score.  But, keep in mind it takes work - it will not be easy, it will not be fast and the only guarantee is the amount of work you put into it.  But, the more you can improve your own credit, the better off you and your business will be in the long-run.

The following are some advice uncovered in our research:

1) Review your credit report semi-annually at the very least. Get a copy of your credit report history from each of the three major bureaus and review them for errors, outdated or bad information and open or negative accounts that aren’t yours. The three credit bureaus will provide information about how to dispute these items.  In most states, you are allowed a free report once a year.

2) In writing or disputing errors to the three bureaus, ask for them to investigate all of your negative accounts and give them individual reasons for your dispute. Don’t lie about the reason for your dispute or if you actually own the account. Just simply state that you don’t have any record of this account or you don’t believe this account to be yours.  By law, the three bureaus must investigate these disputes – but, it will take time for them to do so.

3) Once your written dispute is received by the three bureaus, under Federal Law these organizations must investigate this information with the creditor on record for that or those accounts. If the creditor cannot or does not provide proof the account belongs to you, the three credit agencies must remove the item from your report. Once the negative item is removed, your scores should start to increase and you are on your way of fixing your own credit.

Just make sure that you pull all three credit bureau reports and dispute items to only the ones that are showing the negative information. Not all bureaus will have the same information.

While the recession seems to be turning – the recovery will take some time before any real impacts are felt.  This gives you ample time to work on fixing your handshake (your credit history).  Thus, as banks begin to open their vaults again, you have a much better chance of getting the loan you need – personally or for your business.

Joseph Lizio holds a MBA in Finance and Entrepreneurship, is the founder of Business Money Today, has a strong commercial lending background and is regarded as an expert in small business and finance.

Article Source:http://www.articlesbase.com/credit-articles/repairing-your-own-credit-1522438.html

Millions of people use credit cards all around the world. A huge chunk of those users made mistakes when dealing with their credit cards. The consequence of the errors is costly.

A lot end up in debt and most of the time these are the people who rant about the credit card being the devil. But fact of the matter is, this is not the case. When used properly, credit cards are very good financial tools.

Credit cards are not necessarily just for people who have large sums of money to use. There are some cards even for the financially challenged, and these are called the: “Bad Credit Cards.”

A bad credit card is just precisely that: a card with a very bad or low credit limit.

There are two types of credit cards: there is the secured and the unsecured credit cards.

Unsecured credit cards are the accounts that are free from the limits of a bank account. The limit of credit is up to the bank’s discretion and not up to the size of the bank account. If the bank thinks that a person is deserving of a bigger credit, then it will be given.

This is the usual type of credit cards in the market and is fairly popular among the card shopping people. These are also the cards known to be more respected by other companies. These are also the cards known to send people to a very deep debt.

This is the type of credit card that should be avoided if the applicant is already in a financial mess. Visit http://wetalkingcredit.com for more info.

The secured credit cards are the bad credit cards. These cards are grounded on the size of the account a person has. For example, if a person has a $1,000 balance, then that is all the credit a person is going to get. If there is a point where the balance reaches $0, then the person should go and “re-fill” the account.

The bank limits the credit to the money already present to avoid overspending, thus preventing even deeper debt. This will monitor the expenses of the person and will help the development of a financial recovery for some.

These credit cards are also known as “pre-paid credit cards” for there is only a fixed amount that can be used and the holder is the one who puts it there.

Article Source:http://www.articlesbase.com/credit-articles/the-bad-credit-card-that-may-do-good-1518095.html

When you are ready to apply for a credit card, there are a few things you want to take into consideration before making that final choice on which card to put into action in your life. After a bit of reading and reviewing the offers and your credit needs, your credit rating, you are then going to know if you are really ready to apply for a credit card for you to use.

One thing to think about is how your credit report is. If you are one of the many that may not have the greatest credit, you are going to see that it may be a little difficult to acquire a credit card. If that is the case, you may need to try one of the credit card companies that will help people out that have bad or slow credit. The only thing with the credit cards for people that have slow or bad credit you are going to see that you will end up paying a higher interest rate.

The credit card companies that will offer a credit card with a low interest rate are going to be for the people that have good or excellent credit. You may see that these credit cards are harder to acquire because of the sticker guidelines that the credit card companies have set. As you are looking at all, the credit card offers you will see that there are so many different companies for all different kinds of credit and situations for people looking for a credit card.

Another thing to think of is if you can really afford a credit card. Many people apply and receive a credit card that they are not able to really afford. That is one reason why more and more people end up in credit card debt over their head. In addition, there are some that figure that they are going to get a credit card for a vacation or for the use of buying the items that are needed for the home. The only problem is that they end up charging more than what they are able to pay for at the end of the month.

Once you are ready to apply for a credit card you are going to want to check out all the different card companies that are out there. That is because there is going to be a credit card that is perfect for you to apply at. You are not going to want to fall in the trap that some of the credit card companies will have out there because you may soon find that you really do not qualify for the credit card that is offering you a great rate and a irresistible introduction period.

You are going to want to make sure that you take your time and check out all the different credit card offers that you are going to see when you are looking to apply for a credit card. Than you know that you are going to get the right credit card for the credit rating and situation that you are in so you are not applying for credit cards that you are not going to be accepted for.

 Go to http://wetalkiongcredit.com for more usefull tips.

Article Source:http://www.articlesbase.com/credit-articles/things-to-remember-when-you-apply-for-a-credit-card-1518101.html

Although everyone’s economic status and situation is particular, almost all of us are in some sort of debt at any given time. This can mean small debts like credit card bills or in-store financing, as well as larger ones like outstanding loans and mortgages. What this means is that almost everyone is dependent on being allowed a certain amount of credit, and without credit many things that you take for granted will become difficult. The key to your credit status at any given time is your credit report that is maintained by a credit bureau. Once you fall into default, or miss payments to your creditors, your credit bureau will receive notice and you will find yourself saddled with a poor credit rating. Effective credit repair involves many different steps, and is particular to each individual’s situation. A good solution for most people in terms of credit repair, however, is debt consolidation.

One of the most important things in credit repair is to act quickly. Although your credit rating will become damaged as soon as you begin to miss payments to your creditors, it will get continually worse if you continue to do so. Many people get confused into thinking that credit is either “good” or “bad,” and that once they get into trouble with a creditor it’s fruitless to try and rectify it. The opposite is true, however, so even if you are in bad standing with creditors, credit repair requires that you pay off your debts as quickly as possible.

The problem, of course, is that you probably don’t have the money to pay off the debts, after all, your economic situation probably was the reason for the missed payments in the first place. It is for this reason that debt consolation can be an excellent tool in credit repair. It works by consolidating all of your debts into one loan. In other words, if you have multiple outstanding debts, you take out a loan from one company, use that loan to pay the debts, and then make payments only on that loan.

What debt consolation achieves is some flexibility in situations where your debt is becoming unmanageable. Although you will ultimately owe the same amount of money, you could get a debt consolidation loan over a long term, so that your monthly payments will drop. Most importantly, debt consolidation immediately puts you back on solid footing with your creditors, and ultimately bodes well for credit repair. Things won’t be perfect, but your creditors will report that you have cleared up your debts, and so the process of credit repair can begin quickly.

Debt consolidation is an important tool in credit repair because it allows your status with creditors to change very quickly: you go from someone on bad terms with multiple creditors to someone on good terms with a single one. It allows you to stop the damage before things get out of hand, and gives you the breathing room you need to engage in credit repair. In this way intelligent debt consolation is a valuable tool in credit repair.

Visit http://my-credithelp.com for self credit repair guid.

Article Source:http://www.articlesbase.com/credit-articles/credit-repair-through-debt-consolidation-1518105.html

Those of us who are thinking of escaping from the dreary British evenings as winter closes in could benefit from taking a travel money card with them on their trip.

Travel money cards, issued by companies such as MoneyCorp, CaxtonFX, FairFX, and MyTravelCash can save the card holder money on currency exchange, leaving them with more cash to spend whilst when they reach their destination.

As an example, FairFX, offers rates for euros and US dollars at less than 1% above wholesale rates.

This means that all travellers, be it those who are taking a city break, a half-term week in the sun, or those mixing up business and pleasure in one of the bright-lights cities around the world, can have access to business level foreign exchange rates when using these cards.

Those who choose to buy currency at the last minute whilst in the airport risk paying more for currency exchange, when compared with those who purchase it in advance using a travel money card.

A survey by FairFX.com found that holidaymakers who choose to buy their currency last minute at the airport pay up to 14% more for their foreign currency than if they had bought it in advance. The travel money card provider found that Birmingham and Luton airports offer the worst deals.

Travel money cards have the additional benefit of being very easy to use. They can be topped up online, or by text, and work in the same way as a debit card. The FairFX currency card, for example, is a MasterCard chip and pin enabled prepaid debit card. The cards are issued in either Euros or US dollars, and can be paid for using a sterling debit or credit card, or internet bank transfer.  Similar prepaid cards allow top up by paying cash over the counter in the post-office or through the payzone scheme at participating local shops.

MyTravelCash is also a prepaid MasterCard, issued in euros or US dollars. Travellers who do not use all the money loaded on their MyTravelCash cards can withdraw the outstanding amount from an ATM abroad or in the UK, ask for a refund, or save the money for their next trip.

As well as offering good foreign exchange rates, the cards can also be bought ahead of time, meaning that travellers can take advantage when the exchange rate between sterling and the dollar or sterling and euro is up.

Jonathan Phillips writes for cardsmart.co.uk, a service which offers consumers no-nonsense credit card comparison tables and assists in selecting the right pre-paid cards for the individual UK consumer.

Article Source:http://www.articlesbase.com/credit-articles/the-benefits-of-using-prepaid-travel-cards-when-travelling-abroad-1518167.html

It’s difficult to go shopping for Christmas when you don’t have any money.  You spend all year long hoping and wishing to not only get a few items for yourself but hopefully some items for others  you care about. But, with the economy in a current recession, it’s hard for many people to put food on the table let alone buy gifts for Christmas.

Click Here for Your Free Credit Report Now!

During this season, you’ve already missed the excitement of Black Friday, and if you did, you probably only went window shopping to look at a few items you dreamed about. Yes, there are some companies such as Netspend who will give you credit cards with no money down and no interest payments, but you are uncertain of your credit score.

You’ve already been declined for loans you’ve tried to get such as car loans or loans for electronic and household gadgets you so desperately needed. But, what you didn’t know was that credit card with places like Netspend do not require a credit check. So, it makes life easier for people, like you, to borrow a few bucks to make your holiday shopping complete and filled with smiles of satisfaction and joy.

I mean, what’s Christmas without toys and a tree filled with the things you want and need? I’ve had Christmas’ like that and trust me when I tell you that they are no fun. So, it only makes since to check out credit card options as long as you are careful about your spending. But, you may want to check your credit report anyway, just in case to see where you stand for future shopping buys.

Click Here for Your Free Credit Report Now!

CLICK HERE! For A Free Trial of Pure Cleanse And Lose Your Holiday Weight Now!Article Source:http://www.articlesbase.com/credit-articles/where-to-get-your-free-credit-report-and-have-a-happy-christmas-1514980.html

A loan-provider needs to thank the credit rating system for getting a complete credit history of the loan-seeker on its report to help him evaluate the propensity to repay promptly as mutually agreed. One is expected to be reasonable enough to realize that as lender’s priority is to earn profit, he cannot endanger his money on a proposer whose rating clearly reflects his inability to repay.

Credit score acts as an indicator of financial credibility which is used by the credit institutions and lenders to evaluate the seeker’s potential and his propensity to repay.

All registered lenders and credit institutions equipped the credit agencies with credit reports of each of their borrowers’ previous borrowings and disbursements with other pertinent information. The credit agencies used theses reports to give scores on all aspects of financing on the grounds of a debtor’s credit history inclusive of details of obtained loans, with dates, sums repaid with dates indicating non-payments, late payments, prompt payments, etc. The credit reports helped the credit institutions/lenders to assess the borrowers.

The lending institutions equipped the credit agencies with the data of credit reports of their customers, which was examined and marked by each agency using formulas and methods in different formats, and yet the scores of all were almost identical which proves the reliability of the whole exercise.

The credit agencies are studying only accounts having a minimum span of six months with an update as at a date not beyond six months as at the date of reckoning to maintain the reliability and credibility of the credit score which can remain a yardstick for assessing an individual’s reliability and credibility. So, the long term loans which have been updated presently form the basis for calculations.

Past records of the credit history relating to the repayments –on time, missed and late - are the basis for adding 35% of the credit score. Delinquency, lawsuits, insolvencies, etc. are capable of influencing the credit score. These details are procured through miscellaneous public records.

Another 30% of the total credit score is contributed by the points to be marked on the credit availed in the past, which includes not only total credit availed, but also the number of sources of borrowings, and timely maintaining balances of each account. If the different accounts show maintenance of small balances, it helps in improving the score of the debtor.

The credit history contributes in influencing the fate of 15% of the total credit count of an individual. Points are allotted under this category on the grounds of the lifespan of the oldest loan and the average of the lifespan of the balance loans. Negative scoring is attracted by the period for which opened account is inactive.

If a debtor is able to receive a loan very recently, this achievement of his will contribute to ratings for 10% of the total credit count, subject to how current the loan is. Similarly, denial of an application for loan within last one year will attract negative marking .The queries sent by loan-providers regarding credibility of the seeker will also make an impact on markings and thus the credit count.

The remaining 10% of the total credit count is provided by the kind of credit procured. The transactions of credit cards, short term personal loans, mortgages, etc. relating to receiving and disposing credit are considered for marking the performance for the credit count.

The break-up of the credit score one receives, is calculated by the maximum points received under each of these heads making 100% of the credit score, namely, Historical Records 35%, Credit Availed in the History 30%, Age of the Credit History 15%, New Credit Obtained 10% and Type of Credit 10% is common to all Credit Reporting Agencies. Only the apportionment of points within each heading is varied towards performance. The pattern of procedure for all credit agencies being uniform, the total scores of each are marginally irregular yet close enough to deserve merit.

Discover tips on how to raise your credit score and tips on enhancing your credit score as well as expert guidance to get your credit score fixed when you visit http://www.creditfixadvice.com

Article Source:http://www.articlesbase.com/credit-articles/what-is-a-good-credit-score-understanding-the-information-in-your-credit-score-1515476.html