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Long Term Finance
A long term loan or a medium term loan of more than2 years Atleast is necessary to shore up the working capital. The repayment period of this loan depends on the working capital cycle as well as the recovery period of the borrower's financial position. While assessing the quantum of this loan it is important to understand the industry's average ratios as well.
Also, viewing it from another Angle even if current ratio is less than1 should it require funding is to be thoroughly analysed. Reasons for lower current ratio coupled with analysis of past trends is to be established. If the borrower is repaying a unsecuredloan to his group company in next year and hence he declared it as a current liability leading to lower current ratio OR repayment of long standing loans to directors, then it entails a deeper look. In this scenario we MAY not be interested in funding him. Similarly, if he diverted his working capital funds to unrelated activities, we would like to check in depth before supporting him. Though the question is not about this aspect, second part of my answer is to support views of one of the respondents who shared an answer in the negative.
Long term Finance.........it will increase cash/bank , and if low Current ration is bcoz of maintaing less stock then compnay must increase the stock level.
In this situation a Non Banking Finance Company which does not accept public deposits maturing within one year will have to improve its current ratio. Further this can be improve by increasing the current asset lending base by the firm
In this situation a Non Banking Financial Company will have to improve its current ratio as they are not authorised to accept deposits maturing within one year. Hence they need to strengthen their current asset lending base to improve the current ratio.
A long term debt, generally with a3 to4 years maturity would help the company overcome its liquidity issue.
Long term Debt either inshape of Lease or Term Finance
Working captal.
