Assignment On Managing Financial Resources And Decision Finance Essay

Assignment On Managing Financial Resources And Decision Finance EssayExecutive summary In this assignment different types communication channel forms like doctor sightr, partnership, and limit companies atomic number 18 briefly discussed. Also discussed how they perform and what are the requirements to start a business? How we finance business. The needs of financing like short(p), mid and extensive full barrier resources include briefly in this assignment. There are administer greats, hold debenture, c eached up share capital, share premium, EPS dilution and diluted EPS. These terms are discussed from many another(prenominal) books and websites.Introduction John Caird had been working in an engineering consultancy firm. Recently he laid off with redundancy give steeringment. He is projectning to start his own business. In this assignment I discussed various forms of financing of business, how he can start his business, what are the problems of his business and many business and finance terms.Chapter-1- Identifying the sources of finance available to business. job answerThere are several possible business options for John Caird. These options are mend trader or proprietorship, partnership and corporation.Sole trader or proprietorship 2. Partnership 3. Limited companySole trader a mend trader is an individual in business. Generally sole traders businesses are subtle with their own name. It is the most common organization. There are some returns of being a sole trader independence, person-to-person service, simplicity.Since they have few effectual requirements, sole proprietorships are easy to form and operate. They can also be more than affordable since no legal documents need to be filed in most cases. Basically, all one has to do to form a sole proprietorship is get a business license and begin operations.Although the sole proprietorship does have the advantage of simplicity, the negatives can turn entrepreneurs away from this form of b usiness association. The disadvantages of a sole proprietorship stem from its very nature the business and the business owner are undividable. This leads to three potential problems.First, owners can lose some beneficial tax-free perimeter benefits because they cannot participate in company-funded employee benefit plans like medical insurance and seclusion plans. Second, since the owner and the business are inseparable, whoever sues the business actually sues the owner. The owners personal exposure is un restrain. Finally, the business owner is personally liable for the debts of the company, and unfortunately, personal assets can be interpreted to pay company obligations.Partnership A partnership is a group of individuals working together in business with a view to making a profit. It is similar to a sole trader but has two or more owners. Like the sole trader, the partnership is not a separate legal entity from its owners. Unlike the sole trader, however, the partnership can hold property and incur debt in its name.A partnership is easy to establish and involves two or more people running a business together. The partners are the business. Examples of partnerships include group of doctors, dentists, accountants and solicitors. A partnership does not have to be registered any where but it is a good deal advisable for partners to have a partnership agreement drawn up by a solicitor. This will state what capital.Limited Company A limited company is a separate legal entity, owned by shareholders and run by directors.A limited company is quite different from a sole trader in that it has a legal identity separate from its owner. The owners the shareholders- are not personally liable for the companys debts, but can be made so if they are asked by a lender to provide security. A limited company must be registered at Companies house. An annual return and fiscal statements must be sent each yr to Companys House by company. The rules for running the company must be set out in the Memorandum and Articles of Association, a copy of which must also be sent to Companies House. There is must paper work involved in establishing and running a limited company. travail BRequirementsTermExplanationBuilding and fixturesLong termIt can be purchased by mortgage loan.Office VehicleMid ternIt could be financed by commercial bank or bond. surety SystemMid termLeasing and hire purchase should be suitable for it.Payroll Expense (year 1)Mid termBank loan is a option.Marketing expenseShort tern/ midtermOffice StationaryShort termFrom personal savings.Printing and PublicationsShort termIt can be financed by trade credit.Sources of FinanceDepending on the date of maturity, sources of finance can be clubbed into the future(a)Long-term sources of finance Long-term financing could be raised from the following sourcesShare capital or else equity sharePreference sharesRetained networkDebentures/Bonds of different typesLoans from financial institutionsLoan from finan cial firmLoans from commercialbanksVenture capital fundingAsset securitizationMedium-term sources of finance Medium-term financing can be raised from the following sourcesPreference sharesDebentures/bondsPublic deposits/ unyielding depositsCommercial banksFinancial institutionsFinancial corporationsLease financing / hire purchasefinancingExternal commercial borrowingsForeign currency bondsShort term sources of finance Short-term financing can be raised from the following sourcesTrade creditCommercial banksFixed deposits for a period of 1 year or lessAdvances received from customersVarious short-term provisions lying-in CDEBTEQUITYNoneHire-PurchaseMortgage LoanLeasingBonds and debentureInvoice factor outShare capitalRetained earningsPersonal savings Cash managementInvoice discountingDebt- These are cost where interest forms of payment is paid.Equity- These cost are paid from the part of profit or income.Chapter-2- Assess the implications of different sources of finance.Task DThere a re a number of ways of buying these things. The business might go to the bank for a loan, arrange some sort of finance deal with the supplier, use cash they have in the business or arrange a lease option.A lease effectively means that the business is paying for the use of a product but do not own it. Also it is called hiring. A lease contract on a van, for example, might mean that the firm pays out 350 per month for a three year lease. At the end of the three years the vehicle returns to the owner.Lease agreements can be of benefit to the firm for the following reasonsIt can be cheaper to organize a lease rather than having to buy apparatus outrightLeases can be very flexible equipment might only be needed for a short time or for a particular development and so does not warrant being bought outright.The company that owns the equipment, machines or vehicles is liable for the maintenance and this can aid decrease costs for the business.The payments made are usually fixed and will no t therefore change as interest rates change. This helps business plan more effectively. (Reference from www.bized.co.uk )Before taking any lease we should conform how long do we plan to stay? And we must know the rules and regulation of leasing party. And do there demands match with my requirements and ability.Task EFactoringis afinancial transactionwhereby a business sells itsaccounts receivableto a third party at adiscountin exchange for immediate money with which to finance continued business. Also it is taken when there is a massive tally of sales is through on credit. It is generally used by businesses to progress cash flow butcanalso be used to shrink administration overheads. railway line that provides this service is called factors or debt cypher companies.Invoice discounting is another way of drawing money against your invoices. However, your business retains control over the administration of your sales ledger. As s intumesce up as providing finance,it offers importan t support services and credit insurance.Factoring provides a fastforestallmentagainst your sales ledger. It allows you, at a cost, to flexibly increase your working capital and improve cash flow. Factoringis offered to businesses trading with other businesses on credit terms.It is not usually available to retailers or to cash traders.Factors requirements differ, so what follow is an interpretation and not a firm list. We whitethorn find a matter even if the following features not met.Johns business may be suitable for factoring if it hasAn annual turnover of at least 50,000 although some factors will consider start-ups and smaller businessesBusiness should have more than just a few customers.No single customer accounts for more than about a third of turnover.Customers that allow the standard payment terms for the industry.Customers that agree to a reasonable period of credit. (Reference from www.businesslink.gov.uk )Task FTrade credit is an arrangement to buy goods or services on a ccount that is without making immediate cash payment. In other words, trade credit is Buy now, pay later. For many businesses, trade credit is a crucial tool for financing growth. Trade credit is the credit extended to you by suppliers who let you buy at this instant and pay later. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, youre victimisation trade credit. We can acquire materials very fast by trade credit. Most of the time paying duration is very shorter than bank loans.When we are first-year starting our business, however, suppliers most likely arent going to offer trade credit. They are going to desire to make every order c.o.d. (cash or check on delivery) or paid by credit card in advance until we have established that we can pay our bills on time. While this is a somewhat regular practice, we can still try and negotiate trade credit with suppliers. One of the things that will help us in these negotiations is a prop erly nimble financial plan. So Mr. John Caird could buy security system, stationeries and printings by trade credit.Task GIf Mr. John Caird wants to issue share capital or bond/ debenture to increase more fund for his organization he should start limited company. Limited companies are the largest form of business enterprise. Finance is provided by individuals and financial institution- such as pension funds and unit trust managers- buying shares in the company. The way the investment is made will depend on the sizing of the company.Limited companies, like sole trader and partnerships need finance for long-term purposes. They may also need finance for the acquisition of other companies and business.Also limited company must follow the rules of the Memorandum and Articles of Association.There are the differences of issuing share capital and bond debenture.Issuing SharesBonds/DebenturesType of FinanceEquityDebt approachHighRelatively much lowerRiskLow or no risksHighBonds and Debentur es are debt instruments. The Company issues the Bond or Debenture as the case may give details of the interest to be paid and the period of the loan, and how the loan will be repaid. When we buy any bond or debenture we become a creditor to the company.Share is equity participation in the Company. When we buy a share, we become a shareholder of the company. The company will pay us dividend on the shares. To issue a share / bond / debenture, the company must be registered and must have the necessary minimum capital.Chapter-3- Select assign sources of finance for a business projectTask HIf John Caird is interested to start sole-proprietorship form of business then he should finance the following requirementsBuilding and fixtures This need long term finance. In my opinion Mr. John can go for leasing buildings and fixtures. Although there are no ownership but he can reduce finance cost. He has limited capital thats why it can be risky to buy buildings and fixtures. And when Johns busin ess will run well he could purchase buildings and fixtures.Office Vehicle It will better to buy on mid term loan, as means of paying it by instalments.Security system Mid term finance is suitable for security system, because every year new and better security systems are updating. So John could go for mid term financing like- leasing.Payroll Expense (year 1) it can be financed by short term finance like-loans from commercial bank or personal savings. Marketing expense It must be go to the short term loan. Because marketing expense vary on situation and factors. Also marketing policy changes dramatically.Office Stationary John Caird can buy office stationary by hire purchasing. This will be best for him.Printing and Publications Printing and consequence should be financed by short term form. John can use trade credit or advances received from customer.Task ICairn elan vital illustrated that their Property, Plant Equipment- Development/Producing assets has increased from $1,119.6m in 2008 to $1,828.6m in 2009. And theres something in balance sheet called share premium which is 30 times larger than Called up share capital.Called up share capital- Called up share capital is the money required to be paid by the share holders immediately.Share premium- Share premium is the value which is set above the face value (the increased amount). Excess amount received by a firm over the par value of its shares. This amount forms a part of the non-distributable reserves of the firm which usually can be used only for purposes specified under corporate legislation.Task JEPS stands for earnings per share. The portion of a companys profit allocated to each outstanding share of common stock.Earnings per shareserve as an indicator ofa companysprofitability.CalculatedasWhen calculating, it is more accurate to use aweighted average number of shares outstanding over the reporting term, because thenumber of shares outstanding can change over time. However, data sourcessometimes sim plify the calculationby using the number of shares outstanding at the end of the period.( http//www.investopedia.com/terms/e/eps.asp)Diluted EPSexpands on raw material EPS by including the shares of interchangeables or warrants outstanding in the outstanding shares number.DilutionA reduction in earnings per share of common stock thatoccurs through the issuance of extra shares or the conversion of convertible securities.Diluted EPSAperformance metric used to gauge the quality of a companys earnings per share (EPS) if all convertible securities were exercised. Convertible securities refer to all outstanding convertible preferred shares, convertible debentures, stock options (primarily employee based) and warrants. Unless the company has no additional potential shares outstanding (arelatively sublime circumstance) the diluted EPS will always be lower than the simple EPS. ( Reference by Principles of managerial finance, Tenth edition, Lawrence J Gitman.)Conclusion From three chapters we could know the way how to finance of a company. In my opinion, to established Mr. John Caird Company he should follow this steps. Otherwise the unnecessary steps can increase and he may fall in nuisance.