A Note on Using UCA Cash Flow Analysis to Discern the Purpose(s) of a Firm’s Short-Term Debt

Abstract

This note uses the Uniform Credit Analysis (UCA) Cash Flow Statement to explore the purpose(s) of a firm’s short-term debt. Employing a fictional firm, we examine whether the firm’s short-term borrowing is entirely intended to fund the firm’s net current assets. The results suggest a financing mismatch in the firm’s use of short-term debt in all three years of the study period, either to help fund the firm’s investment in capital (long-term) assets or to cover the firm’s current portion of long-term debt. This analysis provides a useful technique for lending institutions to discern whether potential or existing commercial customers are using short-term debt for a purpose(s) other than supporting net current assets.