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Implications of Different Source of Financing MFRD

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Added on  2019-12-04

Implications of Different Source of Financing MFRD

   Added on 2019-12-04

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MFRD
Implications of Different Source of Financing MFRD_1
TABLE OF CONTENTSIntroduction..........................................................................................................................................1Task 1: Sources of finance...................................................................................................................1A) Sources of finance..................................................................................................................1b) Implications of different source of financing..........................................................................2c) Appropriate source of finance.................................................................................................3D) Cost of sources of finance......................................................................................................5Task 2...................................................................................................................................................5A) Importance of financial planning............................................................................................5b) Information need of each decision makers of an organization................................................5Task 3...................................................................................................................................................63a)................................................................................................................................................6Interpretation................................................................................................................................73b)................................................................................................................................................7Task 3 c.................................................................................................................................................8Appraisal Techniques..................................................................................................................8Task 4.................................................................................................................................................10a) Main financial statements of business...................................................................................10b) Compare appropriate formats of financial statements...........................................................11Conclusion..........................................................................................................................................12References..........................................................................................................................................13
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INTRODUCTIONThe business owner spends their majority of time to make funds available for expandingtheir business. It is responsibility of the management to effectively manage all the funds in thebusiness for the development of the business without facing major problems. This report providea deep understanding of sources of finance that can be managed effectively (Mohsin, 2013).Different type of sources of finance are available for raising funds through expansion of businessthis include internal and external sources. In this case all the different sources of finance throughwhich an organization can raise funds are involved.TASK 1: SOURCES OF FINANCEA) Sources of financeDifferent types of sources of finance are available for the expansion of business. They are asfollows:Those sources through which money can be raised from the within the organization areinternal sources of financing and those through which money can be raised outside of theorganization are external sources of financing (Siano, Kitchen and Confetto, 2010). Retained profitsIt is suitable to meet short term requirements of the funds. It is internal source offinancing used by a business corporation to increase the funds of the business for expanding theirbusiness.Sale of assetsIn order to deal with short term requirement of business objectives, funds can be raisedthrough selling of the asset of the business. Cost of raising funds through selling of asset is zerothat means no cost of selling the assets of the business (Santos and spring, 2013).Funds through equity sharesThe business planners can raise funds through issue of equity shares. It is an externalsource of financing available for the organization to raise money. Large amount of money can beraised through issuing the equity shares in the market. This method takes more time becauseissuing equities in public usually takes longer time than any other. Bank loansBank loans are also a source of external financing for the organizations that they caneasily raise loans from the bank or any other financial institution over a fixed rate of interest. All1
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kind of financial goals can be achieved from raising money through bank loans (Ellinger andEllinger, 2014). Issue of bonds and debentures Company can issue debenture and bonds into public to raise fund for the organization.This method takes more time and cost because issuing debenture in the public is not an easy task,it has some procedure that the company have to follow. It is suitable for achieve long termfinancial needs.b) Implications of different source of financingDifferent sources of financing are available to meet different financial goals. Raisingmoney from equity is a good option available to the organization to raise funds if they need themoney for long term requirement in the business (Bokpin, 2010). Raising money from bank is asuitable option for the organization to adopt because it works on both short term and long termfinancial needs. For meeting the requirement with low leveraged option the organization can gowith the debt option to raise the funds. Organization with short term financial goals can shouldgo for selling of assets of the company, this option do not need as type of cost to raise money(Broadbent and Cullen, 2012). Issue of bonds and debentures is also a good option to raisemoney if the money is needed for short term goals.Legal, financial and dilution of controlEquity sharesIn case of raising money from equity shares they are certain legal factors that should bekept in mind while issuing equity. A legal procedure is there for issue of equity in the public ittakes the longer time than usual because the company have to go with the legal procedure but thecompany has the right to vote and equity holder are said to be the owner of the company(Hisrich, 2010). Company have the control over their shares. To meet with the long termfinancial goals company should go for issue of equities in the public. Risk of bankruptcy is therein case of equity.DebenturesIn case of rising money from debenture company has to follow with a legal procedure,without this a company cannot issue debenture issuing this company should have the profits intheir balance sheet for last immediate five year, in absence of this company cannot go for theissuing the debentures in the public (Vernimmen and et.al, 2014). It is good source of financing if2
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