Ch 15: Assignment - Working Capital Management 6. Short-term financing Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long term financing. Both methods have their advantages and disadvantages The following statement identifies a possible characteristic of short-term financing Consider this case: Interest rates on short-term loans are more stable than long term loans Identify whether the preceding statement is true or false This statement is false. This statement is true. Firms use a variety of short term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source Short Term Financing Source Description Liabilities that arise from purchases from suppliers made on credit. An obligation backed by collateral, often inventories or accounts receivable. stable than long-term loans. e or false. Revolving credit agreement Commercial paper irces to support working capital. Us ving table to identify the short-term Secured loan Accruals Trade credit ppliers made on credit. entories or accounts receivable. Grade It Now Save & Continue Continue without saving DOLL stable than long-term loans. or false. Revolving credit agreement es to support working capital. US Accruals ving table to identify the short-term Secured loan Commercial paper Trade credit ers made on credit. Dries or accounts receivable. Grade It Now Save & Continue Continue without saving DOLL