SHORT-TERM FINANCING AND ITS IMPLICATIONS ON SOLVENCY AND PROFITABILITY OF COMPANY

Eleonora Kontus ()
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Eleonora Kontus: The Town of Kastav, Kastav

Economic Thought and Practice, 2011, vol. 20, issue 2, 443-468

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 (search for similar items in EconPapers)
JEL-codes: G10 G32 (search for similar items in EconPapers)
Date: 2011
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