Financing The short Term Obligations of the Business (BMW vs Mercedes) - Assignment Example

Since these finances are obtained for short terms, therefore they are required to be paid back to the lenders earlier in comparison with the long-term finances. Thus obtaining short term finance for business gives rise to short term obligations, and these short term obligations may include short term loans, amounts owed to the suppliers of the business, amounts owed to other parties to whom payments have to be made but have not been paid yet, accrued expenses which also include payments to be made to third parties for their services provided to the business entity.

The payment of the short-term obligations is an area of concern for every business enterprise. Considering the available resources of liquid cash reserves, a business entity may opt to finance its short-term obligations by releasing some cash, which serves the purpose. On the other hand, if the cash reserves available with the company are not considered to be sufficient for the purpose of paying of short-term obligations, the company may chose to consider other options for financing such obligations (Besley and Brigham 2005).

This report presents an analysis of the financing of short-term obligations for BMW and Mercedes. . BMW’s short term liabilities comprise of provisions for different obligations for personnel and social expenses, short term income tax liabilities, financial liabilities which include bonds, commercial papers, liabilities towards banks, assets backed financing, derivative instruments and others. In addition to this, other liabilities include short-term obligations relating to advance received from customers, amounts payable to customers and to other companies and social security (BMW 2010).

On the other hand, the short term obligations for Mercedes include short term notes, bonds, commercial papers, payables to financial institutions, liabilities from ABS transactions, liabilities arising from finance lease and other short term loans or financing facilities (Daimler 2010). There is no particular disclosures made by both the companies in the financial statements and the related notes, nor there is any other information through which it can be predicted that what are the financing techniques being used by the companies under consideration to pay off their short term obligations.

However, it can be argued that the financial statements of both the companies do not show any particular financing source which may regarded to as meeting the short term obligations. Therefore, it can be stated that in order to pay off their short-term obligations, both the companies are making use of the cash held by them and through the finance obtained by sources mentioned under current liabilities head. Liquidity and Efficiency Analysis Considering the financial information presented in the financial statements of BMW and Mercedes, following liquidity and efficiency ratios are calculated: Company BMW Mercedes  Liquidity Ratios 2010 2009 2010 2009 Current Ratio 1.08 1.08 1.07 1.14 Quick