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Managing Financial Resources and Decisions: Assignment

   

Added on  2019-12-28

20 Pages3677 Words279 Views
MANAGING FINANCIALRESOURCES AND DECISIONS

INTRODUCTIONThere are number of factors that play an important role in restricting growth of thebusiness firm. Finance is the one of the main factor that to great extent influences firmprofitability. In the present report sources of finance are discussed in detail. Along with this itsimplications are also described briefly. In middle part of the report, appropriate source offinance is selected for the business firm. along with this, budget is also prepared and its resultsare interpreted in proper way. In end of the report, ratio analysis is done and financialstatements are discussed in detail. Along with this viability of the projects are measured andbest one is selected for the company.TASK 1ASources of finance available to the business firmsEvery business firm wants to expand its business and to do same it needs finance. Whenthere is a scarcity of the cash in business firms make use of various alternatives to arrangefinance for the business. Some specific sources of finance are explained below.Equity: Equity is financial source which is often preferred by the most of the businessfirms. This is because heavy amount finance can be raised through this source of finance(Haugen, 2011). Cost can be adjusted by the company and due to this feature equity ispreferred by most of business firms.Debt : Equity cannot be issued excessively by the business firms. Hence, after usingequity most of business firms raise finance from debt. In this regard firms take loan frombanks or they issue debentures in the market. In both cases it needs to pay interest tocreditor.Lease: Lease is another financial source which is used to meet long term and short termfinance needs in respect to the specific asset. Rent amount is paid to the owner of theproperty. When firm is not able to purchase the asset it makes use of lease to obtain asset.Retained earnings: It is the part of the sales that remain after deducting all expenses fromthe revenue amount (Tierney and et.al., 2011). This source of finance is used by mostfirms because there is finance cost for mentioned source of finance.

B Implications of the source of financeSources of finance Financial LegalBankruptcyDilution of controlEquityDividend is paidto theshareholders outof the revenueamount. It isnot necessary topay dividend tothe shareholdersevery year(Mehrling andBrown, 2011).In order to issue shares it is necessary to obtain approval from the regulatory body.In case firm get bankrupt creditors will receive debt amount. Thereafter, residual will be used to make payment to the shareholders.Control diluted in case shares are issued in the market.DebtFirm needs to pay interest in each and every situation whatever amount of the profit earned by the firm in the specific year does not matter.Needs to submit copy of the financial statements to thebank in order to obtain debt fromthe financial institute.As mentioned above.Control does not get diluted/LeaseRent amount is paid on the leased asset to the lessor.Necessary to follow all terms and conditions that are mentioned in thecontract which is signed with As mentioned aboveSame as of debt

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