Mastering Business Finance: Capital, Debt, and Funding Strategies

Net Working Capital and Stable Funding

Regarding Net Working Capital (NWC), the stable portion requires permanent funding and should, therefore, be sought from sources of a similar long-term nature. Conversely, if business activity presents seasonal or temporary instabilities, the variable portion of NWC should be financed by short-term sources.

Covering Business Needs with Capital

Needs must be covered with permanent equity or long-term debt, and temporary needs with short-term bank instruments such as credit policies and discount financing. True.

This statement highlights the principle of matching the maturity of assets with the maturity of liabilities. Permanent needs, such as fixed assets and the stable portion of working capital, should be financed by long-term sources (equity or long-term debt). Temporary or fluctuating needs, like seasonal inventory increases, can be covered by short-term bank instruments.

Reducing Working Capital Needs

One way to reduce the need for working capital is by increasing the turnover of inventory. True.

Increasing inventory turnover, for example, by reducing the average number of days inventory remains in storage, is a highly effective measure available to almost all companies. This optimizes cash flow and reduces the capital tied up in inventory.

Internal Resource Generation

Financial Indicator (FI) = (Net Profit - Dividends) + (Amortization - Financial Amortization). Indeed, the resources generated by operations become part of internal resources that are left once you've paid shareholders and creditors. True / False.

This statement is partially true. The formula provided resembles a calculation for internal cash flow or retained earnings. Resources generated by business operations, specifically retained earnings (net profit minus dividends), are indeed internal resources. However, the specific formula and the inclusion of "Financial Amortization" are unclear without further context. Generally, internal resources are funds generated from within the business, primarily retained earnings and non-cash expenses like depreciation and amortization.

Economic Amortization as a Transitory Source of Financing

Economic amortization is a transitory source of financing. False.

Amortization can only be considered a transitory source of financing if the fixed asset was purchased with the company's own resources. Therefore, if debt was used, only the excess cash flow, if any, contributes to this. Amortization itself is a non-cash expense that reduces taxable income but does not directly generate cash unless the asset was fully equity-financed.

Leasing as a Financing Method

Leasing. False.

Leasing itself constitutes a medium and long-term financing method, as it allows the use and possible future purchase of an asset through a purchase option, preventing the company from needing to pay for it upfront. In contrast, a simple rental contract is merely a service agreement, often accompanied by a series of full services, and is not primarily a financing tool.

Permanent Investments and Bank Debt

Permanent investments. False.

This statement is partly true regarding bank debt. While long-term resources are essential for solvency, bank debt can be both long-term and short-term. Short-term bank debt, if not managed properly, could jeopardize the company's financial equilibrium. Therefore, permanent investments should ideally be financed by long-term sources.

Short-Term Funding Through Discounting

Short-term funding through discounting. True.

Small and medium-sized companies often resort to this financing instrument due to its ease. However, it's crucial to consider that the total cost is usually higher due to higher interest rates and associated fees compared to other short-term options.

The Working Capital Fund is Always Necessary

The working capital fund is always necessary. False.

The stable portion of Net Working Capital (NWC) requires permanent funding and should, therefore, be sought from sources of a similar long-term nature. Conversely, if the business activity presents seasonal or temporary instabilities, the variable portion of NWC should be financed by short-term sources. The entire working capital fund is not always necessary to be financed permanently.

Venture Capital for Company Growth

Venture capital. True.

Capital contributions by venture capital funds typically have a limited duration, aiming to support company growth and achieve necessary funding. Venture capital firms (SCRs) gain returns from the revaluation of the equity they have invested in the SME, providing a crucial source of capital for high-growth businesses.

Large Companies and Money Market Access

Large companies can access short-term financing. True.

Large companies can indeed finance themselves by resorting to short-term instruments, including the Money Market, where financial assets with maturities up to 12 months are traded, usually with low risk. This provides flexibility for managing liquidity.