Purchasing and Financing 2024

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8. FINANCING RULES Students understand the importance of responsible financing decisions. The decision of how to finance an asset in a company is closely related to its expected lifetime. Land and buildings are kept as assets for a very long time, while cash funds and stocks are turned over quickly. Long term financing options should only be used if it will take long to reconvert the asset into money. Consequently, fixed assets should preferably be financed by Owner’s Equity, while loan capital should be applied to the financing of current assets as the returns from sales can then be used to pay the creditors. The following table explains how Assets and Financing tools should be coordinated: RECONVERTION INTO ASSETS LIABILITIES REPAYMENT MONEY N/A Cash Long-term Fixed Assets Land, buildings, machinery, long term claims Equity capital Loan capital Debentures, bonds, Long-term Medium to short-term Current Assets Stocks, short-term claims mortgages Trade credits, bank overdraft Rule: financing long-term assets with long-term means, financing short-term assets with short-term means Medium to short-term The following approaches to the financing of company assets can be distinguished: o The Matching Approach where the period for which finance is obtained is matched with the expected lifetime of the asset. For example, where fixed assets and permanent current assets are financed with long-term capital. o The Aggressive Approach where the use of short-term finance is extended to a part of the permanent current assets (higher risk). o The Conservative Approach where even parts of the temporary current asset are financed with long-term capital. 38
9. CREDIT SECURITIES Students can describe the different forms of securities. Before agreeing to give a company a loan for any purpose, the creditor will request securities to guarantee the repayment of the money. The following diagram shows the major types of credit securities used in South Africa. Securities Personal Real Simple Enhanced - Surety Immovable - Mortgage Movable - Cession - Pledge - Notarial Bond - Lien Personal Securities a. Simple Personal Security A credit can be secured by the creditworthiness of a person. This is determined by the financial record of a person or company. Someone with a regular income may qualify for credit because it is expected that he will be able to repay the money. The creditworthiness of people, companies and even countries are monitored by different institutions. They rate the capability of the entity requesting the credit to meet the financial obligation. When a debtor defaults on payment it is recorded and the information is passed on to a Credit Bureau. This can have serious effects on a business as a suppliers who know about it, may now only be prepared to deliver for cash. b. Surety With a surety an individual other than the person requesting the credit is guaranteeing the payment of the loan. If the actual debtor becomes insolvent, absconds or stops payment for another invalid reason the guaranteeing person will be held responsible for the outstanding debt. 39
Page 1 and 2: CATS Program Commercial Advancement
Page 3 and 4: PART A. PURCHASING MANAGEMENT 1. TH
Page 5 and 6: Quality Regarding quality, you must
Page 7 and 8: Price Before one can measure the su
Page 9 and 10: 5. STOCK CLASSIFICATION BASED ON TU
Page 11 and 12: CLASS ASSIGNMENT: A handcraft shop
Page 13 and 14: 7. ORDERING SYSTEMS After it was de
Page 15 and 16: Quantity A) Fixed Quantities Orderi
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Page 19 and 20: There are three ways to find the op
Page 21 and 22: Cost (R) The decision whether to ma
Page 23 and 24: STEP 13: STEP 14: STEP 15: STEP 16:
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Page 27 and 28: Current assets are assets with amou
Page 29 and 30: It is important to note that Income
Page 31 and 32: INDIVIDUAL ASSIGNMENT: A small comp
Page 33 and 34: We can distinguish between the foll
Page 35 and 36: 6. CREDITWORTHINESS Students unders
Page 37: The following should be clear from
Page 41 and 42: 5. Lien A lien is the right to hold
Page 43 and 44: When evaluating the Growth of a Bus
Page 45 and 46: Investors are either expecting an i
Page 47 and 48: 1. Average Assets for Period = (Beg
Page 49 and 50: ROE = Net Income/Average Stockholde
Page 51 and 52: XYZ LIMITED GROUP INCOME STATEMENT
Page 53 and 54: INDIVIDUAL ASSIGNMENT: You intend t

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