October
2001
[COVER STORY]
By Dev Strischeck
Ben Franklin had great insight when he wrote in his Poor
Richard’s Almanac, “If you would know the value of money, go
and try to borrow some.
” It’s still true today.
So when you try to obtain a loan,...
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October
2001
[COVER STORY]
By Dev Strischeck
Ben Franklin had great insight when he wrote in his Poor
Richard’s Almanac, “If you would know the value of money, go
and try to borrow some.
” It’s still true today.
So when you try to obtain a loan, what are bankers really looking at?
Your banker judges your working capital and cash flow management
skills, which certainly impact your cost of capital.
This is why lenders
have a vested interest in three key areas: sound collection practices,
inventory controls, and trade credit discipline.
Investors are also
interested in working capital and cash flow management skills because
a major component of shareholder value is the cost of capital, and bank
credit composes much of this key factor.
Economist Alfred Marshall described quite well how working capital and
cash flow contribute to shareholder wealth when he observed that
“capital is that part of wealth which is devoted to obtaining further
wealth.
” After all, eff
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