APO004-6: Financial Analysis & Funding Methodology - Residential Plc

This report provides a financial analysis of funding methodologies for Residential Properties Plc, focusing on the company's plan to purchase shares of an unlisted company and expand geographically. It examines four alternative funding sources: debt financing through debentures, bank loans, commercial finance companies, and leasing. The analysis weighs the advantages and disadvantages of each option, ultimately recommending debentures and bank loans as the most appropriate methods. Debentures offer increased management autonomy and potentially lower costs, while bank loans provide readily available cash. The report concludes that these funding options will enable Residential Plc to successfully acquire the unlisted company's shares and achieve long-term profitability without immediate repayment burdens. Desklib offers a wealth of resources for students, including past papers and solved assignments.

Running head: FINANCIAL ANALYSIS
FINANCIAL ANALYSIS-TASK 1
Name of the Student
Name of the University
Author Note

1FINANCIAL ANALYSIS
Table of Contents
Background......................................................................................................................................2
Alternative sources of Funding for Residential Properties..............................................................2
Analysis...........................................................................................................................................5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

2FINANCIAL ANALYSIS
Background
The Residential Properties can be understood to be a well-recognized and listed company
which tends to operate in the construction of the residential property. The firm is essentially
financed with the help of equity. In line of this, the board of directors has been planning to
purchase all the shares of the unlisted company and expand to a new geographic location. In line
of this, the company needs to invest a considerable amount in order to take the company but
needs additional funds for that purpose. Therefore, with respect to this, the given section of the
paper will provide recommendations based on which the firm will be able to determine the
manner in which the firm can arrange for the funding amount.
Alternative sources of Funding for Residential Properties
For any business to expand in the long run, it is important for them to ensure that they are
successfully able to engage in a long term financial funding options which would assist them in
their given initiative (Schwienbacher Baker and Welter 2015). Therefore in line with this, the
four different sources of funding are which can be adopted for the Residential Properties can be
stated to be as follows:
Debt Financing- Rising through Debentures
The Debt Financing essentially involves borrowing the funds from the different creditors
with the anticipation of paying it back with an additional interest rate. In line with this, it is
integral for the firm to see to it that, they are being able to pay this debt on time so as to avoid
any kind of additional credit burden in the long run. Hence, one of the most popular ways to raise
capital for the firm can be contributed to the raising of money through the Debentures. The

3FINANCIAL ANALYSIS
Debentures can be considered to be a debt instrument which can be popularly used by the
different companies as well as the government in order to raise a loan. The Debentures act as a
bond which is formed between the issuers and the purchasers (Coleman, Cotei and Farhat 2016).
There are various types of debenture options which are available to the different firms and these
may be understood to be options like Registered and Bearer, Secured and unsecured, convertible
and non-convertible and along with this, the various disadvantages as well as the advantages of
the financing are required to be considered.
The advantages can be understood to be aspects like the increase in management
autonomy, appropriate returns, less costly method of investing. The disadvantages of the
procedure can be taken to be various aspects like in the case of the redeemable debenture, the
firm would be required to make the provisions on a certain date and this may act as a strain on
the company (Cainelli Giannini and Iacobucci2019). In case of the Residential Plc it can be
rightfully understood that, this method of long term financing can be understood to be the most
appropriate one for the organization whereby it would be successfully able to simply invest in
the various operations of undertaking the other firm without having to go through the tedious
procedure of gaining money (Burns 2016). The debenture holders are not required to be paid on
time which then enables them to see to it that, their financing can become a source of permanent
financing. This can be taken to be the most appropriate option for the organization under the
different circumstances.
Bank Loans
The banks can be understood to be the commercial lenders which act as a common source
for business financing. The lenders often require a solid plan for their lending activities. In line

4FINANCIAL ANALYSIS
with this, it is important to ensure that, there are a large number of options which are essentially
available for the different banks and hence, with respect to this, the firm can take a Line of credit
loans, the installment loans which can be paid back regularly, the Balloon loans which requires
just the payment of the interests on a specific date whereas the entire loan is paid off at the end of
the specific period. Hence, this loan option may be preferable for the firm. The secured as well
as the insecure loans can be undertaken by the business as it will help them to gain easy cash for
the business (Åstebro and Serrano 2015). A bank loan may also understand to be very
convenient for the Residential property business and with respect to this; the firm can place
collateral for the loan and apply for it in order to purchase the shares of the unlisted company.
However, the interest rate which has to be paid for the loan can be considered to be a hefty one
and in relation to this, it becomes very crucial to understand that, the organization may not be
able to afford paying interest on the loan.
Commercial Finance Companies
The commercial finance companies may also be used as the sources for the funding when
the different companies may not be able to gain adequate finance from the different commercial
sources. In order to ensure long term success, the firm would be required to see to it that they are
successfully able to take collateral and along with it repay the loan in a logical manner. The
advantage of this may be understood to be the fact that collateral may be helpful in undertaking
the loan, however a disadvantage this is that the cost of financing of this type of loan can be
understood to be comparatively very high (Cheng 2015). The commercial finance companies are
popular sources of funding the different initiatives of the firm however, for purchasing all the
shares of the firm might be a huge expense for the organization and in relation to this, the given
sourcing option may not be that appropriate for the organization.

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Lease
According to Au et al. (2016), the leasing can be understood to be a method of obtaining
the use of the assets in a manner such that the business is able to obtain the use of the assets of a
business without undertaking the means of debt or the equity financing. The leasing can be
understood to be a manner in which a legal agreement between various parties regarding the
terms as well as the conditions for the use of a resource. These payments are often due annually.
The agreement takes place between the company and the financing organization and when the
lese ends, and then it is returned to the owner. The leasing procedure can be understood to be
advantageous in nature if it does not tie up the funds from purchasing an asset. However, it is
very often compared to the purchasing of an asset as well with the process of debt financing
where the payment is spread over a long period of time (Cole and Sokolyk 2018). The leasing
can be taken to be a useful method of financing, however, it is integral for the business to ensure
that, they would be required to purchase a firm and its shares and the option of leasing might not
be appropriate for the business.
Analysis
Hence, from the given analysis, it can be understood that in a scenario where the business
aims to expand in the future, it becomes important for the firm to see to it that they are
successfully able to undertake considerable initiatives which will assist them in gaining the right
kind of an initiative in the right manner (Yunus 2017). With respect to this, it has to be
understood that the Residential Plc needs to expand the business operations by purchasing the
new shares which are available for the organization. In regard to this, it becomes very important
for the firm to ensure that in return of purchasing all the shares of a new business they will be

6FINANCIAL ANALYSIS
required to make a decision which would be beneficial for the organization and result in
profitable ventures. With respect to this, the above financial funding’s method threw light on the
manner in which the firm can undertake the additional funding opportunities.
Out of the given methods of funding, it can be understood that the methods relating to
financing with the Debentures and the other business loan will be the most appropriate medium
of financing. Using the method of Debentures, it has to be rightfully understood that, the firm
will be able to purchase the shares of the unlisted firm very easily and in line with this, it will
also be able to see to it that the firm benefits in the long run (Begenau and Salomao 2018).
Additionally, the firm will also be able to ensure that it is not under the burden to make the
payment immediately and hence, can pay back the overall loan after it has been able to make
profits against the purchased company. Therefore, by linking the advantage of the firm and
analyzing the manner in which the firm would be able to benefit, Debenture can be taken to be
an appropriate option for the firm.
Conclusion
Therefore, in the given study, the various funding options which can be adopted by the
business were examined. The funding’s form an essential part of the business operations and in
regard to this; the firm would be required to understand that it undertakes the different initiatives
which will help it in attaining success. The report laid down the different funding options that
can be undertaken by the Residential Plc. It analyzed each of these options and presented an
analysis of the linking of the financial decision and the investment opportunity as well.

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References
Åstebro, T. and Serrano, C.J., 2015. Business partners: Complementary assets, financing, and
invention commercialization. Journal of Economics & Management Strategy, 24(2), pp.228-252.
Au, K., Chiang, F.F., Birtch, T.A. and Kwan, H.K., 2016. Entrepreneurial financing in new
business ventures: a help-seeking behavior perspective. International Entrepreneurship and
Management Journal, 12(1), pp.199-213.
Begenau, J. and Salomao, J., 2018. Firm financing over the business cycle. The Review of
Financial Studies, 32(4), pp.1235-1274.
Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.
Cainelli, G., Giannini, V. and Iacobucci, D., 2019. Small firms and bank financing in bad
times. Small Business Economics, pp.1-11.
Cheng, S., 2015. Potential lending discrimination? Insights from small business financing and
new venture survival. Journal of Small Business Management, 53(4), pp.905-923.
Cole, R.A. and Sokolyk, T., 2018. Debt financing, survival, and growth of start-up firms. Journal
of Corporate Finance, 50, pp.609-625.
Coleman, S., Cotei, C. and Farhat, J., 2016. The debt-equity financing decisions of US startup
firms. Journal of Economics and Finance, 40(1), pp.105-126.
Schwienbacher, A., Baker, T. and Welter, F., 2015. Financing the business. The Routledge
companion to entrepreneurship, pp.193-206.

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Yunus, M., 2017. Social business entrepreneurs are the solution. In The Future Makers (pp. 219-
225). Routledge.