Evaluation of Different Sources of External Finance and Impact on WACC

Financial Management

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Overview of company:.................................................................................................................3
A. Evaluation of different sources of external finance which are available to a public listed
corporation:..................................................................................................................................4
B. Explanation of term WACC or Weighted Average Cost of Capital and evaluation of view
that WACC is impacted by long-term sources:...........................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management in any company is a crucial operation. This is planning,
organizing, tracking and screening of fiscal capital/resources in order to meet strategic aims. This
is an excellent procedure for monitoring a corporation's financial affairs, like fundraising, use of
resources, reporting, payouts, risk assessments and everything else that has to do with funds.
Financial management is the implementation of particular management ideals to a company's
financial assets. Proper financial management offers performance boost and scheduled tasks to
ensure effective operation. If a business is not managed appropriately, it'll face obstacles that can
significantly affect its success and progress, so managers in company apply financial
management structure (Shapiro and Hanouna, 2019).
The study evaluates distinct sources of external finance in context of public listed
corporation named “Top Glove Corporation Bhd”. Company is Malaysia's leading rubber glove
manufacturer. Study further involves comprehensive explanation about WACC (weighted
average cost of capital) as to what extent it is affected by long term finance sources employed.
TASK
Overview of company:
Top Glove Corporation Bhd is world's biggest glove maker. Which only began as local
commercial corporation with 1 manufacturing unit and One glove production unit now gained
26% of rubber glove market share worldwide. The firm has production processes in Malaysia,
Thailand and China. Company also has merchandising branches in those nations and in USA,
Germany and Brazil. It exports to around more than 2,000 clients globally in 195 nations.
Company officially listed in year 2001 on Malaysian Bourse and in year 2016 on Mainboard of
Singapore Exchange. Top Glove has shown consistent growth over past Eighteen years with an
average percentage growth rate (CAGR) of round 21.7 per cent for sales and 19 per cent for
income after tax. Top Glove strives to manufacture reliable, secure and low-cost gloves in
accordance with its time apparently-tested business management, thanks to its around 18,000
current employees. Top Glove is not only looking after its laurel, but it is also looking forward to
dramatically increasing its share of the global marketplace by 30% by the year end of 2020
(About Us: Top Glove Corporation Bhd. 2019).

A. Evaluation of different sources of external finance which are available to a public listed
corporation:
Funds are basic requirement of every business and commercial enterprise, thus
arrangement of funds is critical task for business managers. For arrangement of funds, business
managers should evaluate the sources of funds as different sources of funds have different
impacts on business capital and fund structure. By using the incorrect source, the cost of funds
tends to increase, that in turn directly affects the financial viability of business operation.
Improper correspondence of capital form with commercial requirements could conflict with
smooth working of the company (Karadag, 2015). for instance, When fixed assets that receive
benefits after two years have been funded via short-term finances, after 1 year, cash flow
incompatibility will be created and the manager has to search once more for finances as well as
to pay the expenditures to raise capital once more. Following is discussion on considerations to
take into account for selecting type of financing:
In context of Top Glove Corporation Bhd, board of directors should consider the funding
required, purpose of raising funds whether for long term or short term, duration for which funds
are required and current level of gearing in business. Moreover, directors may take into account
existing reserve funds, sources available for funding as per nature and size and impact of funding
source on business's stability (Parker, 2012).
External sources of finance can be defined as venues/places to collect funds from outside
an organization. External sources of funding could include the merger/acquisition of new
company associates or the issuance of lengthy-term debt capital or bonds, or corporate debt
papers. In this context here are several major external sources of finance that are available to
listed public corporation like Top Glove Corporation Bhd, as explained below:
1. Equity Financing: Equity funding is the way the selling of securities to raises funds. Equity
funding is subject to regulations that are enforced in certain jurisdictions by any local or national
securities regulator. This legislation is intended primarily to safeguard the investment public
against unethical traders who may receive funds from unwitting shareholders and vanish from
financing. Accordingly, equity funding is often followed by a proposal called memorandum or
prospectus containing detailed information which should enable the investor to make an
informed decision on benefits of the funding. The report or prospectus must state the functions of