Review article
SHORT-TERM FINANCING AND ITS IMPLICATIONS ON SOLVENCY AND PROFITABILITY OF COMPANY
Eleonora Kontuš
orcid.org/0000-0002-6144-9501
; Grad Kastav, Kastav, Hrvatska
Abstract
The purpose and aims of this paper are to explore short-term financing of companies, its impact on profitability and solvency, then to determine which sources of short-term financing to employ, based on the lowest cost criteria, and lastly, to prove the importance of scientifically-based management of short-term financing. The company should bear in mind the cost of available sources expressed as a comparable Effective Interest Rate After Tax (EIRAT) and decide on the optimal composition of the company's short-term sources from a cost-effective point of view with regard to EIRAT. To determine what sources of short-term financing to employ, a firm should take into consideration the cost of the sources, the impact of short-term sources on solvency and profitability and decide on the optimal composition of the firm's short-term liabilities from an economic, solvency and profitability aspect. On the basis of research results, a model of optimal short-term financing has been developed whereby a company can select the optimal composition of short-term sources from a cost-financing, solvency and profitability standpoint.
Keywords
short-term financing; profitability; solvency; effective interest rate after tax; model of optimal short-term financing
Hrčak ID:
75567
URI
Publication date:
30.12.2011.
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