Financial Management for Organizations

This report discusses financial management for organizations, including raising finance and the impact of COVID-19. It also evaluates the proposal to cancel dividends and its implications for investors. The report concludes with the importance of choosing the right source of finance and the need for companies to announce dividends for the next year.

Financial Management
for Organizations

INTRODUCTION
Financial management may be characterized as the field or role of a company dealing with
productivity, investment, cash and credit, such that the organization may have the resources to
accomplish its goal in the most comprehensive way possible, often described as optimizing the
worth of the business to shareholders (Mitchell and Calabrese, 2019). Financial managers (FMs)
are skilled specialists reporting directly to shareholders. It is essential to manage financial
performance of companies in an effective manner. The report is based on two different cases in
which first one is related to Auto trader that has raised amount of £200m to reduce impact of
COVID 19. While second case is based on Carfan advertising that planned to cancel dividend in
order to overcome from COVID 19.
MAIN BODY
(a) Discusses the way in which Auto trader raised £200m of finance and compares this with
other methods available.
There is no specific information about ways in which Auto trader raised £200m of
finance. Though, this can be assumed that company might raise funds by equity financing
which is explained below in such manner:
Equity financing- Equity finance is the method of collecting money through the selling of
shares. Companies are collecting funds whether they may have a quick need to cover bills
or they may have a lengthy target and need investors to purchase in their growth. By
holding assets, they sell interest of their business in exchange for cash, such as stock
funding (Lu, Shon and Zhang, 2020). Equity capital arises from a variety of outlets, such
as friends and relatives of founders, partners or a public offering (IPO). Major
corporations like Face book and Google have raised billions of money from IPOs.
Although the word equity finance applies to the funding of public corporations listed on a
stock exchange, the term often refers to the funding of private firms. Equity finance

includes the selling of total shares, as well as the sale of other equity or semi securities,
such as additional stock, contingent corporate bonds and equity units, including ordinary
stock and securities. A start-up that expands into a profitable business would have
multiple rounds of equity funding as it progresses. Since start-ups usually draw various
forms of capital at different stages of their evolution, they can use various common
shares to satisfy their funding needs.
Compare with other options of fund raising:
Debenture- Debt is a form of bond or other promissory note that is not backed by
leverage. Since the debits do not have financial protection, the debits must depend on the
creditworthiness and credibility of the lender for support. Both companies and
policymakers also issue capital or fund-raising responsibilities. Similar to other shares,
loans can be subject to annual interest fees called coupon payments. As all forms of ties,
indentures are registered. An indenture is a legally binding contract between bond issuers
and bondholders (Al Breiki and Nobanee, 2019). The contract describes the attributes of
the loan offering, such as the expiration date, the frequency of interest or discount rates,
the form of interest calculation and other functions. Companies and banks may issue
debts. Government agencies usually sell long-term bonds—with maturities greater than
10 years. Corporations often use debts as long-term mortgages. Although the
commitments of companies are not ensured. Instead they are supported only by the
financial stability and creditworthiness of the underlying business. Such lending
securities incur interest rates which are exchangeable or redeemable on a set date.
Usually, a corporation makes these scheduled loan interest payments before paying
dividends to its owners. Duties are beneficial for businesses because they have lower
rates and long credit dates relative to most types of loans and treasury bonds.
Retained earnings: Retained earnings (RE) are the sum of net profits available to the
company after profits have been paid to its owners. A company produces income that can
be favorable (profit) or unfavorable (loss). Positive earnings provide a lot of space to the

owner(s) of the firm or the management of the company to use the excess income they
have received. This benefit is mostly paid out to customers, but it can also be re-invested
in the business for development purposes (Al Muhairi and Nobanee, 2019). Cash not
returned to owners is deemed to be fund operations. Where a company produces surplus
revenue, a component of long-term shareholders may expect some daily revenue in the
future of dividends as an incentive for placing their capital in the company. Investors
aiming for short-term gains can also choose to collect dividend dividends that deliver
immediate gains.
b) Consider the mitigation of the impact of COVID to:
 working capital and short term finance-
 Medium and Long Term Finance-

(c) Evaluate Dave Ellis proposal to cancel the dividend with respect to the implication for
investors with reference to Modigliani and Miller
Dividend- A dividend is the transfer of income from a company to its owners. When a
company receives a benefit or surplus, it is able to pay a percentage of the profit as a
dividend to the owners. Any sum not allocated shall be taken to be re-invested in the
company. A part of the net income of the company can be distributed to the owners as a
dividend or held within the business as capital gains (Suykens, Rynck and Verschuere,
2019). Dividend distributions shall be determined by the Board of Managers and
accepted by the owners. These fees can be distributed as cash or equity securities.
Dividend cuts occur when a dividend-paid business either entirely ceases losing money
(generally the worst-case scenario) or reduces the sum it pays out. This most frequently
resulted in a sharp fall in the share value of the shares, as this action is generally an
indication of the deteriorating financial status of the company that causes the business
less appealing to investors.
Dividends are typically diminished due to reasons such as a weakening of profits or
insufficient funds sufficient to pay dividends (Shapiro and Hanouna, 2019). Usually,
dividends are paid out of the business earnings, and if the company's profit falls with
time, it then has to raise the payout or access money from other locations, including its
short-term deposits or debt, to reach previous dividend amounts. When a corporation uses
capital from non-earnings outlets or collects too much of its earnings, it could be placing
itself in a financial situation of agreement. For example if a business does not have the
funds to pay off its loans and it pays out much in dividend, the business may defaults on
its loans. But this is not always the case, since profits are probably close to the top of the
list of items cut while a business faces financial problems.
Each economic downturn is distinctive in its own way. Yet the new Covid-19 is an
unparalleled challenge to the world economy. Countries worldwide have introduced
various strategies, varying from various variants of lockdowns, home work, rigid curfew,

extreme bans on foreign and domestic travel, etc., that have practically brought industry
to a halt. Now, multiple dividend-paying industries are slashing their payments.
Basically, dividends are paid to investors and stakeholders in accordance of generated
amount of profit. If a company fails to produce any income or profit than it becomes
difficult for companies to make payment of dividend to stakeholders.
Given case: In accordance of given information, this can be inferred that Carfan
Advertising company decided to cancel payment of dividend to stakeholders. Due to this,
there can be various kinds of issues and concerns for company as well as for investors.
Below detailed analysis of impact of cancelling dividend on stakeholders:
Investors: Investors typically purchase shares of dividend-paying firms with monthly
dividend distributions. Retirees and those on fixed income may have a variety of
dividend-paying securities in their investments since they depend on quarterly cash
dividends to make a living (Maaldu, 2019). The elimination or termination of dividend
distributions impacts the capital inflows of these holders. The effect will be important if a
large number of businesses report shortfalls in fast succession, as was the situation in
2008 and 2009.
Impact on company: The decline in the dividend influences the financial outflows of the
company. Accounting for the paying of a dividend requires a decrease in the amount of
assets and remaining profits on the balance sheet. The retained earnings record of the
corporation accrues net profits minus dividend payouts. As a result, the decrease of the
dividend raises both the interest income and the balances of the income statement. The
cash flow from funding operations, which is part of the cash flow statement, rises due to
the decrease in dividends, which boosts the overall cash flow. Companies may take
several steps to minimize the effect of a dividend reduction, beginning with adequate
knowledge. Company must clarify whether it is cutting or suspending dividend payments
and whether or not it plans daily payments to be restored. For instance, management
might say that the company wants to spend cash saved in new product creation or
investments that will produce stronger long-term investment returns. Shareholders must
determine the factors for the loss of the dividends before determining whether to hold the
company and make investments elsewhere. For example if a business has 1 million

common shares remaining and reduces the dividends from $2 to 1 a share, the cash
savings equate to $1 a share or $1 million in all. As a result, cash, cash flows and net cash
flow figures are raised by $1 million each.
Impact on stock price: A decrease in the dividend may adversely impact the share value
that impacts both the corporation and its owners. Markets respond adversely to the
company's declaration of cut dividends, when investors and analysts expect the worse,
particularly if business peers retain their monthly dividend payouts (Zimon and Zimon,
2019). Investors believe that a corporation is reducing distributions because it has issues
with cash flow. This may be the result of worsening economic conditions, such as
weakening revenue, rising prices and dropping earnings. Investors will sell the stock of
this company that could lead to a decline in the share price. The company will have
difficulties raising financial assistance because buyers and lenders appear to stay away
from financial distressed firms.
What investors need to do?
When many of the conventional dividend-paying industries are stopping dividends, what
shareholders can do for a fair and safe return? If the contraction of the dividend affects
the sector, the stock price will collapse automatically. Consequently, one cannot actually
get out of it quickly; rather, one must first recognize the loss of both income and money.
Then, we must figure out the reasoning for the lowering of the dividends and delay a few
days until any judgment is made. So the logical way to get out of this dilemma is to wait
before the stock price comes up.
In relation to Carfan Advertising, they cancelled their dividend due to COVID 19 and this
will lead to negative impact on company’s goodwill. As well as investors need to focus
on upcoming year and try to gain higher return. In addition to this, above company also
need to make announcement about next years’ dividends. By doing so this will be easier
for company to satisfy their investors.

CONCLUSION
On the basis of above project report this can be concluded that companies need to take
financial assistance from a particular source of fund. In order to do so business entities
have a range of source to assist financial need but it is important for companies to choose
a source of finance that is less costly and effective. It is so because any error made by
company in regards to selection of source of finance may lead to huge loss of company as
well as decrease in goodwill of company. As well as further part of report concludes
about cancellation of dividend and its impact on stakeholders. The end part of report
articulates that company needs to announce dividend for next year if they cancel to pay
any dividend in current year.

REFERENCES
Mitchell, G.E. and Calabrese, T.D., 2019. Proverbs of nonprofit financial
management. The American Review of Public Administration, 49(6), pp.649-661.
Lu, J., Shon, J. and Zhang, P., 2020. Understanding the Dissolution of Nonprofit
Organizations: A Financial Management Perspective. Nonprofit and Voluntary
Sector Quarterly, 49(1), pp.29-52.
Al Breiki, M. and Nobanee, H., 2019. The role of financial management in promoting
sustainable business practices and development. Available at SSRN 3472404.
Al Muhairi, M. and Nobanee, H., 2019. Sustainable financial management. Available at
SSRN 3472417.
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. John Wiley
& Sons.
Suykens, B., De Rynck, F. and Verschuere, B., 2019. Nonprofit organizations in between
the nonprofit and market spheres: Shifting goals, governance and
management?. Nonprofit Management and Leadership, 29(4), pp.623-636.
Maaldu, E.B., 2019. FINANCIAL MANAGEMENT PRACTICES AND FINANCIAL
SUSTAINABILITY OF LOCAL NON-GOVERNMENTAL
ORGANIZATIONS (Doctoral dissertation).
Zimon, D. and Zimon, G., 2019. The impact of implementation of standardized quality
management systems on management of liabilities in group purchasing
organizations. Quality Innovation Prosperity, 23(1), pp.60-73.