Spontaneous Financing and Corporate Cash Management

Spontaneous Financing and Corporate Cash Management Student’s Name Institution of Affiliation Course Professor Date Spontaneous Financing and Corporate Cash Management Financial resources are vital in financing a company's operational activities and require proper management to sustain the business. This is especially the case regarding decision-making when assets of funding and managing liquidity. This essay presents questions like should long-term investments will be funded by short-term liabilities, factors for the growth of an excellent finance department, the need for a regional treasury department for multinational companies, and strategic activities that can enhance enterprise liquidity management. Funding Long-Term Assets with Short-Term Liabilities Whenever a business is considering whether it should finance long-term operating assets with short-term sources of finance, it should do so with much caution. Even as we consider trade credit available short-term facilities, it appears to cost less money than usual but poses severe liquidity issues for a company. Since short-term liabilities, it is a claim due for payment within a short time known to be within the following year. However, long-term assets such as property, plant, or equipment have their returns spread over several years. These situations give rise to conditions where the repayment of the liabilities is not synchronized with the cash flows from the assets, thus putting the financial system at risk. This causes long-term assets to be funded by short-term debts, thus requiring frequent refinancing. If a company is in a position where they are unable to refinance its short-term debt at reasonable interest rates as could be expected or is entirely unable to refinance the short-term debt, then it may find itself in a liquidity crunch or may have to sell assets at a lower price than what he had hoped for. For example, Verizon Communications Inc. issued $25 billion new debt to pay for the 5G spectrum investments, a long-term asset that will generate revenues over the long term (Verizon Communications Inc., 2021). However, Verizon opted to use long-term bonds instead of short-term liabilities. This decision made much sense regarding the company's long-term capital expenditures, thereby needing a stable source of financing. Moreover, the absence of short-term debt allowed Verizon to avoid refinance on worse conditions while maintaining reliable, relatively stable credit sources for long-term investment plans. Short-term sources of financing long-term assets also cause problems of cash flow mismatches in the business. In the textbook titled Short-Term Financial Management, it must be noted that companies that borrow in the short term to finance long-term projects sometimes struggle with liquidity requirements. In such cases, the company has to perpetually roll over its debt, a given that this is dangerous if the interest rates rise or the credit markets contract (Zietlow et al., 2020). T...