Business Finance: Working Capital, Sources, and Valuation

Posted on Apr 3, 2025 in Business Administration and Management (BAM)

Within the economic and financial structure of a business relationship, there exists a close connection between financing and its consequences. Therefore, there must be equilibrium between assets, equity, and liabilities.

Working Capital

Working capital represents the financing of current assets with long-term liabilities. From an asset perspective, capital flow is numerically equivalent to the portion of current assets funded by long-term liabilities.

FM: ANC-PNC PN + capital = Current = AC-PC

Period Maturation Medium (PMM)

PMM represents the average time elapsed from when a company invests in raw materials or merchandise until that currency is recovered through sales collection.

  1. Phase 1: Acquire Serials – Sourcing raw materials to carry out production activities, waiting to be employed in the manufacturing process, and stocking serials.
  2. Phase 2: Manufacturing – The manufacturing process takes place, maintaining a stock of products during manufacturing.
  3. Phase 3: Sales – Completed products are stored until sold.
  4. Phase 4: Collection – No cash is received immediately; there is a postponement as the debt remains outstanding to the company.

PMM: PMA + FAQ + PMV + MPC

Classification of Financing Sources

  • a) According to the source property: Own or someone else’s funds
  • b) According to the source of funds: Internal or external
  • c) According to the term of devolution: Long-term or short-term
  • d) According to the destination of funds: Maintenance or enrichment

Share Value

  • Value: The value of a share appears in the title or annotation in the account. This value was given at the time of issuing shares, obtained by dividing the total social capital by the number of shares issued at the time of creation. ((Broadcast-price value)) = Share premium
  • Theoretical Value: The book value of a share is the result of dividing the company’s net worth (capital and reserves) among the total number of shares.
  • Real Value: The real value of a share, determined by supply and demand, is called the market value or effective value. If the company is publicly traded, it will correspond with the listed value.

External Financing Sources for the Company: Foreign Capital

  • The issue of debt: Loan, obligation, debenture, reimbursement, time limit expired.

Shares and Bonds

  • Both represent a total, with debt obligations representing total capital stock.
  • Both represent degrees and account entries.
  • Both have a nominal value reflected in the title.

Difference

  • Obligations have a maturity term, while shares do not dissolve.
  • Obligations have fixed payments, while shares do not.

Incentives

  1. Premium on obligations
  2. Broadcast of repayment
  3. Compelling remarks in actions
  4. Advance payment of interest
  5. Obligations indexed
  • Bank Loans
  • The simulator rental or leasing
    • Simulator, operate = renting
  • Trade discounts or discounting
  • Promissory notes, bills of exchange need cash
  • The sale of receivables (factoring)
  • Credits or credit providers of provision
  • Other sources of external financing
    • Credit extended by suppliers to acquire fixed assets, grant aid, risk capital funds (venture capital): capital investment company acquires part of the social capital, receiving cost of operation.