The total cost of each resource has to be determined and summarized. On the basis of the summarized reports of cost of resources, a budget will be prepared by the finance and accounts department which would help the organization to determine next course of action (Summers, 2011, pp.2-11). Working Capital Management Proper working capital management is necessary to carry out day to day business operations. It is defined as the difference between current assets and liabilities. Thus, the objective of working capital management is to maintain a balance between current assets and liabilities. Positive difference or surplus funds can be used to make planned expenses such as payment of short term obligations and salaries. The working capital is negative or deficit when the current liabilities exceed current assets that would require the firms to borrow short term funds in order to manage the deficit (Ganesan, 2007, pp.1-2). When the working capital is positive, the firm would have surplus short term funds which can be invested in the money market instruments. The maturity of money market instruments are less than one year and hence investment in money market is less risky. This is because, the status of any business can be more or less accurately predicted in short term whereas the same becomes uncertain as the maturity increases due to increased chances of borrower to default. Some important money market financial instruments are discussed as follows: Commercial papers (CP) – They are issues by highly rated corporate entities and classified as short term unsecured promissory notes issued at discount and redeemed at face value. Certificate of Deposit (CD) – It is similar to ordinary time deposit differing only in maturity period and interest rates. They are issued by banks and the interest rates are generally higher than savings deposit rates. Municipal notes – Short term financial security issued by municipality in expectation of tax receipts as revenues. Treasury bills – They are debt instruments issued by the government whose maturity ranges from 3 to 12 months. Repurchase agreements – they are short term loans that are arranged by an investor to whom securities would be sold with an agreement to repurchase them back on a future date at pre-determined fixed rate. Thus, a corporate organization may park their excess generated from efficient working capital management in above discussed financial instruments that are liquid and used as marketable securities. Financial Instruments of Securities Market Every organization invests capital in business to finance its operations and generates goods and services to meet demands and earn profit. As the business expands its operations more funds are required to carry out business objectives. The financial sources may be broadly classified into equity and debt. Funds can be raised from these sources in the financial securities market. The securities market may be further divided into primary or secondary securities market. In the primary securities market only those securities are issued that are participating in securities market for first time and the process is known as IPO (Initial Public offering). The secondary market is a place for traders who buy or sell differ securities.
BUSINESS FINANCING AND THE CAPITAL STRUCTURE Financial Planning Every organization has specific goals and objectives that are derived from the organization’s mission and vision. The process of financial planning helps a business organization to determine how it would have enough money to achieve its strategic objectives…
This understanding would be highly essential and helpful while doing a computational work with the help and use of the weighted average of cost of capital. With the help of weighted average of cost of capital, companies become in a position to determine an appropriate equity and debt policy that could ensure the future growth and sustainability.
Capital structure refers to the way through which companies are able to finance their assets through hybrid securities, debt or equity. Financing of foreign company branches is influenced by local tax rates and the conditions of the capital market. Therefore financing an overseas project depends on effective tax rates.
The methodology provides a description about four short term finance sources availed by the businesses. Each one is separately described. Subsequent to that, the liquidity and efficiency ratios of Sainsbury and Tesco have been computed and compared. Four different sources of short term finance Short term finances fulfil the day-to-day operations of business.
The process of financial planning for asset investment requirements is referred to as the capital budgeting process. First step in the process is to determine the possible investment alternatives that would address the need of the business. After identifying the likely options, the corresponding costs (purchase and installation) and the possible income streams into the future should be estimated, taking note of the years during which they are expected to materialize.
To maximize the owners (shareholders) wealth. The financial manager should attempt to achieve an optimal capital structure i.e. an ideal combination of various sources of long term funds so as to minimize the overall cost of capital and maximize the market value per share.
The different type of financing options available for the company is debt financing and equity financing. In debt financing, the company can acquire loan through bank, commercial paper, creditors and bond issuance. On the other hand, in equity financing, the company can obtain funds by issuing shares publicly both common and preferred.
The Modigliani-Miller theory may be intuitive, but is it credible Are capital markets really sufficiently perfect After all, the values of pizzas do depend on how they are sliced. Consumers are willing to pay more for the several slices than for the equivalent whole.
Equity involves the issue of preferred stock, common stock or using the company’s retained earnings.
When talking about the capital structure of a company, this means the debt to equity ratio. This is important because it can be able to show
Debt is the borrowing of money by the company using the various debt instruments and then repaying the money plus an interest. Equity is the selling of the company’s interests in a bid to raise money.
Debt has several advantages over equity. First, in debt financing the