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  3. cash flows from operations may not be sufficient f

Cash flows from operations may not be sufficient for a firm to keep up with...

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Finance

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:

Short-term credit agreements are more restrictive than long-term credit agreements.

Identify whether the preceding statement is true or false.

This statement is true.

This statement is false.

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.

Description

Short-Term Financing Source
A formal, committed line of credit extended by a bank or other lending institution.
An obligation backed by collateral, often inventories or accounts receivable.

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