Managing Financial Resources and Decision

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Managing Financial Resources and Decision
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1.1 Alternative source of finance

• Long Term
• Short Term

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• Long term finance sources- Provides funds for
  more than one year.
• Venture capital
• Equity capital
• Loans from banks
• Issue of debenture and bonds
• Leasing

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• Short term sources of finance- provide funds for
  just one year.
• Bank overdraft
• Trade credits
• Advances from customers
• Short term loans from banks
• Friends and Relatives

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1.2 Assessing the implication of sources

• Venture capital-
• High risk seekers
• Provides long term funds
• Demands for high return
• Fixed percentage of sales is to be paid to
  venture capitalists

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Continued

• Equity capital-
• Major source of finance
• Dividends are paid by company
• When dividend declared business pay Dividend
  taxes
• Shareholders have voting rights and control

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• Issue of Bonds debentures-
• Issue debenture is a lengthy and complex process
• Puts fixed interest charge on the business
• Increases financial leverage of the business

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Continued
Leasing- Lease rentals are to be
paid Maintenance and repairs expenses are to be
bear by lessee No Initial amount is paid Provides
tax advantage to business

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Continued

• Bank loans-
• Loans are to repaid in installments
• Interest rates are high
• Bank do no grant whole amount in one time
• Controlling of business is influence

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1.3 Appropriate sources of finance for a business
project

• Venture Capital
• Provides funds for long term period
• Venture capitalists provides managerial
  assistance
• Bank Loans
• Funds for long term period
• Managerial assistance from banks personnel
• Personal Savings
• No interest is paid
• Remains life time

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• Share Capital
• Not repaid by the business
• Dividends may be paid
• Collect huge funds
• Leasing
• No initial investment is required
• Lease rentals are paid in installments
• Provides tax shields
• Friends and relatives
• Lower rate of interest is paid
• No influence over business decisions

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2.1 Analysis of costs of different sources of
finance

• Venture Capital-
• Pay fixed percentage on its sales as returns and
  bear high risk.
• Bank Loans- Interest paid on banks loans are
  generally high.

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• Share Capital- It depends on profits earned by
  business.
• Leasing- Under leasing, business has to pay lease
  rental to the leasor for using assets
• Friends and relatives- Interest rate on this
  source is low.

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References

• Jordan, B. J., 2012. Financial Management for
  Episcopal Parishes. Church Publishing, Inc.
• Lasher, R. W., 2011. Financial Management A
  Practical Approach. 6th ed. Cengage
  South-Western.
• Sources of finance, 2013. Online. Available
  throughlt http//businesscasestudies.co.uk/busines
  s-theory/finance/sources-of-finance.htmlaxzz2kWXg
  Gc9Lgt. Accessed on 13th November 2013.
• Ittelson, T.R. 2009. Financial Statements A
  Step-By-Step Guide to Understanding and Creating
  Financial Reports. Career PressInc
• Lasfer, M., 2007. On the financial drivers and
  implications of leasing real estate assets The
  Donaldsons-Lasfer's Curve. Journal of Corporate
  Real Estate.9(2). pp.7296.
• Linzner, O.A. and Linzer, S. R., 2008. Cash Flow
  Strategies Innovation in Nonprofit Financial
  Management. John Wiley Sons.

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