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Research Report on Managing Financial Resources and Decision

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Added on  2019-12-04

Research Report on Managing Financial Resources and Decision

   Added on 2019-12-04

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MANAGING FINANCIALRESOURCES AND DECISIONS
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INTRODUCTIONFinance is one of the most important resource that every human being needed in itsbusiness. Varied information’s related to the finance are covered in the current research report.Implications of the varied sources like venture capital and lease as well as bank loan are alsodiscussed in detail. Budget cash flows are interpreted in the report in systematic way. Apart fromthis in the report on the basis of results of project appraisal approach best proposal is chosen onthe basis of obtained results. In order to measure the company performance ratio analysistechnique is used and weak points of same are identified.TASK 11.1Excel analytic is one business firm that recently commenced its business operations.Severalalternatives that are available to the mentioned company are described below.Exterior bases of fundsPrivate equity- It is the source of finance which is similar to equity and in current timeperiod it is used by most of business firms which cannot raised capital from the stockmarket.PE firm purchase shares of the company as per terms and conditions ofagreement and due to this reason it get a right to participate in the board meetings of thefirm that happened at end of each quarter. Thus, it can be said that firm existing ownersto some extent lost their decision making power in the firm.Equity- It is another finance source which is widely used by the small, medium and largesize business firms across the globe. Those who wants to launch IPO in the market takehelp of the investment banker and by taking guidance from same make all decisions inrespect to IPO and determining share price (Helleiner, 2010). There are some paperformalities that firm who intends to launch IPO have to complete with the stockexchange. After completion of formalities shares are listed in the primary market.Taking asset on rent-Usually in the business there is less availability of cash. Due to thisreason it is not possible for firm to purchase capital asset. In order to solve this problemusually firms take asset on lease.Contract for lease of asset is signed by the propertyowner and entity that wants to take asset on lease. By taking asset on lease firm financeits business operations at limited cost.
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Finance from financial institutes- Bank loan is usually taken by the firms to financetheir business projects at large scale. There are two sort of bank loans that are available tothe business firm namelystatic and non-static finance cost. Managers after consideringmacroeconomic factors and current condition determine whether they must take loan atfixed or non-static interest rate.Interior basis of fundsRetained earnings- In current time period most of companies are using retained earningsto finance their internal operations or acquiring other company.There are many firms thatfund majority of amount of investment by using retained earning amount1.2 FinancialsourcesLegalFinancial BankruptcyReduction incontrolPrivate equityInevitable to signon the contractwith the PE firmfor getting fundfrom same.Dividend andsetting feetogetherconstitute highfinance cost inrespect to relevantsource of finance.Creditors are paidfirst relative toshareholders. Control reducedwhen shares areissued to PE firm.Trade creditOther companyand business firmrelationsdeterminewhether firm willsign any paperdocument withbank in order toget trade credit. Medium rate ofinterest is chargedon the trade credit(Hong andKostovetsky,2012).Similar to PE.No changehappened incontrol of existingshareholders.LeaseIt is mandatory toinkpaperdocument orContract tocontract cost alsoget changed.Similar to PE.No changehappened incontrol of existing
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contract withlessorWhatever termsare decided in thenegotiationconstitute cost oflease.shareholders.Bank loanInterest that ispaid to thefinancial instituteform a cost ofbank loan.Cost of fundingbusinessoperations is lessrelative to equity.Similar to PE.Similar to tradecredit.RetainedearningsIt is the part ofprofit and due tothis reason thereare no legalimplications.There is no costof retainedearnings.Used to pay backdebt amount tocreditors.Similar to tradecredit.1.3 There are positive and negative points of all sources of finance and it is very importantfor the managers to select appropriate one. Any source of finance cannot become perfect for thebusiness firm. This is because every alternative source of finance have some merits and demerits.Hence, any source of finance that is selected by the firm will certainly too some extent willnegatively affect it. Thus, firm have to evaluate its current condition and change that may happenin the business environment and on basis of results must select source of finance that less affectit negatively. Private equity cannot be choose by the firm because if same will be selected toraise fund then it will need to sale its huge portion of shareholding to the PE firm. Decisionmaking power of business owner’s will reduce.Trade credit seems best alternative because incase of same by taking advantage of old relationship can outflow can be delayed to some extent(Kocherlakota, 2010). In every condition trade credit should be selected by the relevantcompany. This is because in business always face problem of lack of funds. In trade credit byusing personal relations delay can be made in payment of debt amount. Thus, by using tradecredit cash can be easily managed in the business. Hence, it is best financial source for thecompany in comparison to other. Bank loan is another alternative which firm can consider to
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