University of Libya BETC program 4/24/2013 Managing Financial Resources and Decisions Semester 1, 2nd assignment Under the supervision of: Mr. Mohamed akhter Student : Abduraof Abdulhakim Abdullah Question 1: Identify the sources of Finance available to a business ? The Most important concepts and think in managing financial resources is that where and how to access sources of finance for a business. Also we know there are a number of ways of raising finance for a business. The type of finance chosen depends on the nature of the business. Additionally Large organizations are able to use a wider variety of finance sources than are smaller ones. Savings are an obvious way of putting money into a business. A small …show more content…
Another problem is that when the loan comes due, you may not be able to refinance at all. That was in last year, a problem for some. The advantages of medium term sources of finance: It is not necessary to pay more attention to your load You can complete your loan in a short period. Responsibility ended You can take another loan if you need in the future. The disadvantages of medium term sources of finance: Usually bank is charging a higher interest rate for a medium-term loan You will not get a tax benefit for a medium-term loan There is a danger if we fail to pay within the grace period allocated. The advantages of long term sources of finance: Bonds and Debentures are usually much more rewarding banks or government bonds and investments and provide a higher rate of financial return for their investors. Another great feature of the bonds is that at the end of the lending companies usually offer in assets in the form of stock, which can ultimately very valuable. Equity is another great form of investment and sometimes better than receiving immediate cash in return. The disadvantages of long term sources of finance: Bonds and Debentures held at greater risk because the company could eventually go to work, so it should be this kind of investment very carefully. Can be a very attractive form of bonds to invest, but only should take advantage of the companies that have a very high probability of success. Large and successful companies already are forms
Financial Management is an important aspect of how a business operates efficiently. The way that the finances are controlled can determine how successful the company is. The finances of a business allows for the growth of the company. The five practices of financial management: capital structure decision, investment appraisal techniques, dividend policy, working capital management and financial performance assessment are critical when assessing a company. The performance of a company plays a key role on how successful the company is on meeting goals. There are different strategies and tools that a company can implement and if they are used to effectively the company can meet their goals. If a company has good finances, a good
The bonds can be issues with fixed interest or variable rate interest, each of which has its advantages and there disadvantages.
Corporate finance is important to all managers because it allows a manager to be able to predict the funds the company will need for their upcoming projects and think about ways to organize and acquire those funds.
For example, stocks traditionally have a potential for higher return than bonds over time because stocks are usually a riskier investment than bonds.
Neil Kokemuller (2014). The Advantages and Disadvantages of Debt and Equity Financing. Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-debt-equity-financing-55504.html
A new venture takes creativity, motivation, spirt, and capital. The beginning of any venture begins with analyzing ones financial markets and how best to place the vested capital to continuously have the company grow. In many aspects one may purchase an already established business, in this case the understanding of how the loan process works is imperative. One may purchase a building and start a business from the ground up, in this case one will also need to have a great understanding of how mortgages and lending works as well. Many lenders will look into the financial market of the business before considering a loan of any type. In this case good solid numbers and record keeping is important. Understanding that a financial market is based on traders who buy and sell stocks, bonds, derivatives, foreign exchange and commodities (Amadeo, 2015). Successfully analyzing and investigating all financial resources is crucial.
Bond’s with collateral will have lower coupon rate as bondholders have claim on collateral no matter what. It provides an asset which lowers default risk. Downside to company is that this collateral cannot be sold as an asset and needs to maintain it.
It provides an evaluation of the bond issuer’s financial strength and ability to pay back the bond’s principle and interest. The bond rating also provides investors with some sense of security when investing in a particular firm. A higher bond rating implies a lower likelihood for the firm to default. Investors would feel more secured investing in such a bond, thus demanding a relatively lower rate of return. As such, high rated bonds enable the issuer to enjoy a lower cost of borrowing. A lower bond rating, on the other hand, serves as a negative signal to investors on the firm’s ability to repay debt obligations.
Firstly, interest on debt is tax deductible, therefore, debt is the least costly source of long-term financing as this is a tax saving for the frim. Thus, creditors or bondholders require a lower return on debt as it is considered a reflectively less risky investment. Secondly, the capital structure of a firm is flexible due to debt financing. Ultimately, bondholders are creditors and they do not have voting rights, hence, they are not involved in decision making and business operations. Additionally, the major advantages of equity finance are as follows. Firstly, the capital provided is to finance the businesses short term needs and future projects. Secondly, the business will not have to pay any additional bank expenses such as interest on loans, thus allowing the business to use the money for business activities. Lastly, investors anticipate that the business will develop thus they help in exploring and executing thoughts. Certain sources, for example, venture capitalists and business angel can bring significant skills, abilities, contacts and experience to businesses and they can also provide expertise advice to businesses (Hofstrand,
In fact, bond investments are carried out in several ways, depending on the type of bond:
Hence, financial management is vital for all types of organizations, profit making as well as non-profit making. In case of non-profit making organizations also the effectiveness and performance depends on their financial resources management. Financial Management = == ==
Though bonds provide such safety, their yields are very low and have little potential for capital appreciation in the long-run for both the issuer and receiver. Besides, the low interest-rate of bonds makes the return on holding cash virtually non-existent (Voya & Scotia, 2009). Convertible bonds, however, offer a middle ground between the safety of bonds and the upside potential, and risk, of stocks. For this firm seeking income, higher-yielding convertibles bonds are the right options they can explore. This allows for the downside protection of a
A bond is debt to whoever sells the bond to an inventor. If you buy an IBM bond, you are loaning money ($1000) to IBM instead of a bank loaning money to them. Just like a bank, you are going to charge IBM interest on your money, as well as a return of principle when the loan is due (ten years later). The company does not go to the bank to borrow the money, because the bank will rate the company as a high risk company. Hence, banks are really tight with their money. High yields bond investment relies on an credit analysis in that it concentrates on issuer fundamentals, and a "bottom-up" process. It focuses more on "downside risk default and the unique characteristics of the issuer. In a portfolio of high yield bonds,
Banks issue credits to organizations seeking funds for there ventures. The bank usually “prefers a self-liquidating loan in which the use of funds will ensure a built-in or automatic repayment scheme” (Block & Hirt, 2005, Chapter 8, p.
Debt and equity financing are your two basic options to raise money for a start-up company or growing business. Debt financing includes long-term loans you get from the bank. Equity financing is private investor money you get in exchange for a share of ownership in the business. Now I want to explain about the advantages and disadvantages of using equity capital and debt capital to finance a small business's growth. The advantages of Debt is financing allows you to pay for new buildings, equipment and other assets used to grow your business before you earn the necessary funds. This can be a great way to pursue an aggressive growth strategy, especially if you have access to low interest rates. Closely related is the advantage of paying off your debt in installments over a period of time. Relative to equity financing, you also benefit by not relinquishing any ownership or control of the business. Interest on the debt can be deducted on the company's tax return, lowering the actual cost of the loan to the company. Raising debt capital is less complicated because the company is not required to comply