Financial Management and Investment Strategies for Businesses

This study material from Desklib covers various topics related to financial management and investment strategies for businesses. It includes expert suggestions on current investments, agency issues, factoring arrangements, and more. The content also discusses the main differences between partnership, sole proprietorship, and private limited companies in terms of access to capital, distribution of profit, and decision making. Additionally, it examines the advantages and disadvantages of raising funds through issuing stock or borrowing. The subject covered is Financial Management and Investment Strategies, and the course code and college/university are not mentioned.

TMA

Table of Contents
MAIN BODY.......................................................................................................................3
Question 1. Give suggestions on current investment and the amount which she is liable for in
every situation:............................................................................................................................3
a) If Amy’s Ballet studio is a sole proprietorship that is owned by Mrs Pho.............................3
b) If it is a partnership that is owned in 60:40 ratio by Mrs Pho and Mrs Mitchell....................3
c) If it is a private limited company owned in 80:20 ratio by Mrs Pho and her sisters..............3
d) Main differences between partnership, sole proprietorship and private limited companies
in term of access to capital, distribution of profit and decision making as well............................3
Question 2. State reasons in context of agency issues within Green future PLc also recommend
alternative funding which must be considered.............................................................................4
Question 3 a) Examine whether it is financially fruitful for organisation T4 to enter into factoring
arrangement................................................................................................................................5
b) Identify and describe the similarity and variation between bond and bank loan from business
point of view................................................................................................................................6
c) State advantages and disadvantages for raising funds with the help of issuing stock or
through borrowing.......................................................................................................................6
Question 4. A) State necessity of current bank overdraft within Cravniosk Ltd’s liabilities. In
what manner bank must react to such situation justify your answer...........................................6
b) Explain which among the given alternative sources would better suit the business. Provide
justifications.................................................................................................................................7
CONCLUSION.....................................................................................................................7
REFERENCES.......................................................................................................................8

MAIN BODY
Question 1. Give suggestions on current investment and the amount which she is liable for in
every situation:
a) If Amy’s Ballet studio is a sole proprietorship that is owned by Mrs Pho.
It can be observed that if Mrs Pho has to act like only owner in the business then the
liability which she would be possessing would be equivalent to 1,45,000 which includes and
states the investment made by her in the business initially which she has to cover by carrying
out activities and operations in a effective and efficient manner. Further there are financial
debts of 95000 prevailing around the surroundings of business for which she has to plan its
business accordingly well in advance in such a way that she is able to cover such debts at first
place and then generate required profits for planning budgets keeping future in mind
(Alareeni, 2018).
b) If it is a partnership that is owned in 60:40 ratio by Mrs Pho and Mrs Mitchell.
The situation if would be of Partnership it would have been much easier for both
partners to share losses, cover debts and also generate profits by planning activities. Mrs Pho
is liable to cover a amount of 87000 whereas Mrs Mitchell is liable to cover a amount of
58000 which would help them to maintain stability as well as sustainability in marketplaces
in which it is working and functioning.
c) If it is a private limited company owned in 80:20 ratio by Mrs Pho and her sisters.
In this case Mrs Pho would be liable for 116000 whereas her sisters are liable to cover
29000 for the business well being with time. It is thus observed that it is more likely to be a
tough situation for Mrs Pho when compared with her sisters.
d) Main differences between partnership, sole proprietorship and private limited
companies in term of access to capital, distribution of profit and decision making as well.
Main variation observed between three choices are as under:
Sole proprietorship: In case of Sole ownership only one person is liable to collect
payments, make payment and also enjoy the generated profits. He/she would be induldge into
activities such as maintaining useful records and managing the work carried out by them. It
includes risk and threats to be managed and looked after by only one sole person and it might
lead to mismanagement of records as well.
Partnership: In case of partnership deed the risks, the money invested and the revenue
earned is distributed between them in a ratio in which they have invested in the company.

Thus it is beneficial because the losses are also distributed in equal portion which would not
make one person feel burdened.
Private limited companies: In such cases there are may partners each having their own
department and their own liabilities assigned towards the work rendered and are paid
accordingly. In such cases the profit earned is distributed on a larger scale due to the reason
being many people involved in such activities (Borlaug, 2020).
Question 2. State reasons in context of agency issues within Green future PLc also
recommend alternative funding which must be considered.
There are many issues and problems which might take place in Green Future plc company
such as:
 Bad reputation and poor brand image of business in competitive environment: If the
company fails to pay dividend for 5 consecutive years which would affect the running
and functioning of business in competitive environment. It might also lead a bad
impression on people already engaged with the the company and contributing in its
growth and expansion related activites. Liquidity and solvency can only be
maintained by a company in market when they have a strong brand image and are
available with adequate funds to manage shareholders and pay dividend and profit on
a timely basis.
 Diminishing number of investors in market: One of the main reason which might
serve and result in a problematic situation for company is that if the shareholders are
not paid expected dividend then it might lead to dissatisfaction among investors as
well and they might discontinue long term investments in a business which would
affect health of the firm in long run (Haldorai, Ramu and Murugan, 2018).
There are many alternative ways through which company can raise funds keeping
shareholders and stakeholders in mind such as:
Retained earnings: It can be explained as a useful way which would be serving company
in appropriate manner and on which business would be able to carry out its operational
activities in a smoother way. They can be used for paying dividend at a reduced margin but it
would help business to manage their present stakeholders and keep them linked as well as
connected for a longer period of time. It can be explained as best medium in eyes of
shareholders and financial managers as well the reason being it states the use of money which
a company already holds and is retained by them over a period of time for such critical
situations.

Equity capital: One of the most apt way to generate funds and collect money for planning
future activities or attracting more investors into a business is through raising equity capital
by introduction of equity shares. In such cases firm won’t be liable to pay dividend if they
aren’t avaialble with enough funds and no profit has been earned over a period of time by the
business. According to financial managers and shareholders it can be counted as best tool for
managing finance and working on relations made by business over the years with
stakeholders as well (Helmold and Samara, 2019).
Debt capital: It can be explained as a manner in which companies can borrow money
same as individuals do and it helps in higher growth. It is a useful way to collect funds when
the business is expecting a pool of money available with them by planning well in advance
what has to be done and what can be done in stated time duration and how the organisation
can make best use out of it and also cover them with time.
Question 3 a) Examine whether it is financially fruitful for organisation T4 to enter into
factoring arrangement.
Factoring cost: It can be explained as a discount factor which enterprises receive in
order to facilitate purchasing invoice before they are due and debtors are waiting for the time
to cover them. It is thus observed after computation of such costs that it is beneficial for the
company to chose factoring cost the reason being it has resulted and proved to be cheaper
than other available options.
Collection of Trade receivable by factoring cost:
Particulars Amount
Trade receivable 200000
Less: 2% factoring cost 4000
Less: Interest (6% per
annum)
10800
Total 185200
Non factoring cost:
Particulars Amount
Trade receivable 200000
Less: Credit control cost 64000
Total 136000

Credit control cost i.e. 64000 is more than factoring cost which is 14800 thus it is
advised that the company must chose factoring cost rather than non factoring cost.
b) Identify and describe the similarity and variation between bond and bank loan from
business point of view.
Difference between Bond and Bank loan:
Bond are considered as debt instruments which are issued by enterprises with the
motive to raise funds which can be easier to trade in the marketplaces. Bank loan is the
amount which is given by bank as a borrowing for a certain point of time keeping financial
position and stability of business in competitive environment (Jones, Foster and Longaker,
2018).
Similarity between Bond and Bank loan:
 Both the terms share a sense of security, assume risk and threats and render liquidity
in environment as well. It is helpful in rasing money and has a variable interest fixed
and prevailing with both.
c) State advantages and disadvantages for raising funds with the help of issuing stock or
through borrowing.
Advantages:
 Help in generating and collecting cash that would help the business to grow and
expand in market areas.
 There is no tension related to repayment of debts.
 Helps in proper assistance and to control the company’s unwanted activities as well.
Disadvantages:
 There are higher interest rates associated.
 It takes away ownership as well.
 There are many legal risks involved.
Question 4. A) State necessity of current bank overdraft within Cravniosk Ltd’s liabilities. In
what manner bank must react to such situation justify your answer.
Bank overdraft is given importance because it gives immediate access towards extra
funds when there are no funds left with the company on a chargeable fees it could be used
mainly in situations where company is not having adequate funds left with themselves for
carrying out budgets and making payments to suppliers and vendors on time given. It is
considered as a financial backup and it is a more flexible way to borrow money from places
which would prove to be cheaper than when compared to loans (Long and Qu, 2018). It is
more quickly arranged and it helps to serve as a last resort for companies facing financial

instability as compared to competitors present in market. Banks must go through the reasons
for which companies demand bank overdraft and also assess what are the possible chances to
cover that amount from the business organisations.
b) Explain which among the given alternative sources would better suit the business. Provide
justifications.
 Commercial banks: It is considered one of the best source for collecting funds from
market as it is one of the most trusted, reliable and secure manner to collect funds i.e.
through loans and advances. It can be observed that the company is demanding to
raise the level of present overdraft margin by a percentage of 50% which would be
helpful for them in coming days for improving the finance related situation in market
(Pandita and Ray, 2018).
 Issue of equity shares: It is considered one of the best effective and efficient manner
in collection of funds and raising revenue as well. It is recorded that company is
already having enough of shares thus it would easier for the business to attract more
investors in the company.
 Borrowings: It would be helpful and beneficial in collection of funds from various
people and sources but it would also increase liabilities and pressure over the
company in long run. Thus it must be chosen when the company has less people
present around which have to be paid in stated time frame.
Keeping in mind present situation of company it is advisable if they go for bank
advance or overdrafts and increasing the limit which would help the company to make
payments well on time to trade payables and utilise money in generating more income in
the time duration given (Parker, 2018).

REFERENCES
Books and Journals
Alareeni, B., 2018. Does corporate governance influence earnings management in listed
companies in Bahrain bourse?. Journal of Asia Business Studies.
Borlaug, B.A., 2020. Evaluation and management of heart failure with preserved ejection
fraction. Nature Reviews Cardiology, 17(9), pp.559-573.
Haldorai, A., Ramu, A. and Murugan, S., 2018. Social Aware Cognitive Radio Networks:
Effectiveness of Social Networks as a Strategic Tool for Organizational Business
Management. In Social network analytics for contemporary business
organizations (pp. 188-202). IGI Global.
Helmold, M. and Samara, W., 2019. Progress in performance management: Industry insights
and case studies on principles, application tools, and practice. Springer.
Jones, R.E., Foster, D.S. and Longaker, M.T., 2018. Management of chronic wounds—
2018. Jama, 320(14), pp.1481-1482.
Long, H. and Qu, Y., 2018. Land use transitions and land management: A mutual feedback
perspective. Land Use Policy, 74, pp.111-120.
Pandita, D. and Ray, S., 2018. Talent management and employee engagement–a meta-
analysis of their impact on talent retention. Industrial and Commercial Training.
Parker, M., 2018. Shut down the business school: What's wrong with management education.