1MANAGING GROWING BUSINESSESIntroductionThere is always a requirement of extra capital in business even if it makes profits whichcan be done through debt capital and equity. When the ownership of the company is broken intosmall shares then equity capital is generated. Each share holds a fixed price which is bought byother people to raise the capital (Jensen and Michael). The rights of the company are given to theshareholders as per rules given in company act. Dividends are paid from the profits made by thecompany. When funds are borrowed from any person or a financial institution with condition ofinterest repayment then it is called debt capital. This method is used more often because equitycapital makes owners lose their rights of the company. Both methods have their pros and cons.Cash flow has become the major issue in case of MacDonald due to overstocking. To raisecapital MacDonald can raise debentures and sell shares. This report contains analysis ofAlbercan drilling as well.
2MANAGING GROWING BUSINESSESReasons why McDonald needs to borrow to finance his profitable businessAlbercan drilling needs to be financed in spite of the profits being made is because of thecash flow issues of the company are disturbing MacDonald. The cash flow issue has come updue to unprecedented increase in the company’s inventory which has increased the cash outflowsmore than its inflows (Merton and Andre Perold). Cash flow problems have started whenMcDonald bought the shares of Mr. Kelly who left the business. Due to this reason ADS has toarrange more money for smooth running of its business.ADS is looking forward to expand and grow and for that it needs more money as workingcapital. For the execution of growth and expansion vision it needs capital. ADS has shownconsistent growth since last decade and made continuous profits. But after buying the shares ofMr. Kelly the growth has taken a dip. If the company grows at its previous rate then it can easilypayback its loan and can make profit like before. Diversifying its drilling equipment into modernone, will make its stock increase and hence its product portfolio. Debit financing can assist ADS to spend in advertisement and reach more customers.They can sell drilling pipes on a wholesale rate to small companies. This will create priceleverage where ADS can lower the cost of their drilling pipes to attract more customers. Debit Financing will free MacDonald from any personal risks. He won’t have to sell hispersonal belongings in the form of shares to raise the capital and loan will make him moresecure.MacDonald also has the option of selling debentures to raise capital. Debentures are loanswithout collateral which are unsecured and backed by the company itself. Debentures do nothave high interest rates as banks and all the assists are secured. Alternatively, McDonald can sell
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