...Business Financing and the Capital Structure Joelann Rousell Principles of Finance May 31, 2015 Financial planning involves decisions related to finance, financial requirements of the company. Financial manager has to determine the needs of the funds and available sources for those funds. Financial planning is deciding in advance the funds required for future actions. There are several steps involved in the process of financial planning. These steps are described as follows:- 1. Estimation of fund requirement:-Amount of capital required is determined at this step and in determining the capital need projected statement has to be drawn. Capital is of fixed and fluctuating nature and we need both fixed as well as fluctuating capital to run business. Fixed capital is required for fixed assets, investment in intangible assets and fluctuating capital is required to maintain stock and inventory of the company which is required to carry on operating activities. 2. Determining the sources of funds available:-To finance the above requirement what sources are available with the company has to be determined. Various sources are available like bank loans, raising money through shares, securities, or debt and equity. 3. Choosing the best source of finance:-There are various sources available to the company but according the paying capacity and nature of the company we have to choose the available source. 4. Forecasting the availability of funds or company’s earning capacity:-Next...
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...Business Financing and the Capital Structure FIN 100 March 3, 2014 Dr. Marcus Crawford Business Financing and the Capital Structure A business can be defined as an occupation, profession or trade (Dictionary.com, 2014). It can consist of a person or a partnership of some sort. With a business comes struggles and success, the way a person or partnership handles those struggles may determine their success or downfall. With any business their main purpose is to make money and to stay above the rest of the market. As a financial advisor the writer of this paper will describe the advice they will give to the client for raising business capital, outlining the advantages and disadvantages to all options and explain the historical relationships between risk and return for common stocks versus corporate bonds. Describe Advice for Raising Capital As a business owner or operator it is always wise to look at all options to bring in new revenue or increase the capital in a company. It is in the financial advisor’s opinion to consider the following options: Microloans, Bank-Term Loans, Asset Based Loans or Small Business Administration Loans. Each one of these options will generate increased capital for the business. Microloans are small loans given to small business borrowers to help businesses have working capital, usually reaching up to $50,000 (Entrepreneur Media, Inc., 2014). An average Microloan is granted for around $13,000 dollars dependent upon each situation given...
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...Being a financial advisor to a business takes some preparation. I will need to outline the goals of my client, long term and short term and come up with the best advice I could give with regards to raising capital for the business. The main sources for raising capital are through debt and equity. “Debt financing means borrowing money from an outside source with the promise of paying back the borrowed amount, plus the agreed-upon interest, at a later date.” (Palermo, 2014) One of the advantages of debt financing is that the lender does not receive on ownership share to the business because after the debt is paid, there are no more obligations to the lender. Therefore it preserves ownership. Debt financing can be done for small or large businesses and it comes through loans from commercial banks or through organizations like the SBA (Small Business Administration) loan programs. There are disadvantages to this type of financing especially for the businesses that don’t do well and still has the obligation to pay the loan. Instead of all the profits going back into the business, part of it will have to be used to repay the loan. It does not matter if the company is doing well or not, the debt will still have to be repaid monthly or whenever it is due. “Carrying too much debt is a problem because it increases the perceived risk associated with businesses, making them unattractive to investors and thus reducing their ability to raise additional capital in the future.” (Hillstrom, n...
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...Business Financing and the Capital Structure of the Federal Reserve Strayer University Principles of Finance (FIN100) Abstract This paper will describe one way the US financial markets impact the economy. How the US financial markets impact businesses and one way that they impact individuals. Providing a brief explanation of the primary roles of the US Federal Reserve, the Federal Reserve Chairman, and the Federal Reserve Board. Explaining the ways that interest rates influence the US and global financial environment. We will also give an example of influence for both the US financial environment and one example of the global environment. The Federal Reserve System or Federal Reserve is the central banking system of the United States (US). Congress established this system in 1913 to provide America with an organized, secure, flexible monetary and financial system. This essentially creates stability by balancing systematic risks; according to the Federal Reserve website. There are a total of 12 Federal Reserve Banks located in major cities throughout the US. The banks generate their income based on services provided to other banks, interest accrued on government security bonds and interest accrued on loans and deposits. Each of the aforementioned generates income which is circulated back into the US Treasury. As mentioned in Investopedia, “The Fed’s mandate is to promote sustainable growth, high levels of employment, stability prices to help preserve the purchasing power...
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...FIN 100 WEEK 8 ASSIGNMENT 2 – BUSINESS FINANCING AND THE CAPITAL STRUCTURE To purchase this Click here: http://www.activitymode.com/product/fin-100-week-8-assignment-2-business-financing-and-the-capital-structure/ Contact us at: SUPPORT@ACTIVITYMODE.COM FIN 100 Week 8 Assignment 2 - Business Financing and the Capital Structure Businesses have to make many financial decisions that have a direct impact on operations and the ability to successfully compete in the marketplace. Base your writing on the information from the course coupled with information located in the Strayer databases or Internet. Write a three to four (3-4) page paper in which you: 1. Explain the process of financial planning used to estimate asset investment requirements for a corporation. Explain the concept of working capital management. Identify and briefly describe several financial instruments that are used as marketable securities to park excess cash. 2. Assume that you are financial advisor to a business. Describe the advice that you would give to the client for raising business capital using both debt and equity options in today’s economy. 3. Explain why a business may decide to seek capital from a foreign investor indicating the risk and rewards for such a decision. Provide support for rationale. More Details hidden... Click Here to Buy this; http://www.activitymode.com/product/FIN 100 Week 8 Assignment 2 - Business Financing and the Capital Structure Activity mode aims to provide...
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...the financial statement. INTRODUCTION OF PROJECT In line with its Human Resource Management strategy, ITL is seeking to implement a “Quality Work Life Balance” –Quality WLB, a concept to improve employees’ satisfaction, skills and effectiveness. This is becoming more of an international trend where we have recently observed the UK Prime Minister, Tony Blair citing the tangible and intangible business benefits of good Quality Work Life Balance …“The UK business environment has shown that it is possible to have flexible labour markets combined with a balanced family friendly policy to help work life balance-WLB. The result will no doubt be higher growth, higher employment and low unemployment.” In this perspective, we shall be addressing the project on three fronts. Firstly, we shall be looking at the definition and importance of project financing. Secondly, the different sources of financing will be discussed and lastly, we shall discuss the impact of financing on various stakeholders of ITL. PROJECT FINANCING It is often difficult to start a business without sufficient capital. All businesses require some form of finance throughout the...
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...Debt Versus Equity Financing ACC/400 May 14, 2012 Debt versus Equity Financing Debt versus equity financing is a critical element in the process of managing a business and also the most challenging decision facing managers who require capital to fund their business operations (Schroeder, Clark, & Cathey, 2005). Debt and equity are the two main sources of capital available to businesses, and each offers both advantages and disadvantages. This paper will compare and contrast lease versus purchase options, examine debt and equity financing, provide examples for each source of financing, and identify which alternative capital structure is more advantageous. Lease vs. Purchase Options: Compare and Contrast In business the decision to lease or purchase is a critical element of strategic management. Equally important is the way in which the asset will be used. Operating leases are most often used by organizations looking for fixed payments with no long-term risk, and a limited useful life of the asset. Capital leases are more aligned with the features of a conventional purchase. Purchasing often requires a higher monetary expenditure at the start, in addition to acquiring the financing to purchase through a lender. Leasing usually requires a lesser amount of cash down, and the monthly payments are often smaller. Additionally, leasing offers tax benefits because the full lease payment can be immediately deducted, whereas purchasing only allows the interest...
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...Working Capital Structure and Financing Pattern of Mauritian SMEs Kesseven Padachi*; C. Howorth[1]; M. S. Narasimhan[2] and R. Durbarry3 *School of Business, Management and Finance University of Technology, Mauritius La Tour Koenig, Pointe – aux – Sables, Mauritius kpadachi@utm.intnet.mu ABSTRACT The competitive nature of the business environment requires firms to adjust their strategies and adopt good financial policies to survive and sustain growth. Most firms have an important amount of cash invested in current assets, as well as substantial amounts of current liabilities as a source of financing. This paper therefore analyses the working capital structure and financing pattern of small to medium-sized Mauritian manufacturing firms, using primarily secondary data. Structural differences in working capital and the financing pattern of the sample firms are analysed and the results showed significant structural changes over the study period. The research finding revealed disproportionate increase in current asset investment in relation to sales resulting in sharp decline in working capital turnover. The analysis also revealed an increasing trend in the short-term component of working capital financing; in particular trade credit and other payables have financed the major part of working capital. This over-concentration on short-term funds is a reality of the SMEs as they often faced difficulties in raising finance and they are viewed to be informationally opaque....
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... | Financial Structure is the framework of various types of financing employed by a Oil company to acquire and support resources necessary for its operations, commonly, it comprises of stockholders’ investments, long- term loans, short-term loans and short-term liabilities as reflected on the right hand side of the Oil company balance sheet. Financial Structure is different from capital structure in the sense that it also includes current liabilities. Therefore, financial structure is the combination of two main components 1) Capital structure and 2) Current liabilities. To provide an understanding of the concept of financial structure in Oil sector specifically capital structure of Padma Oil Company Limited, the balance sheet, debt and equity, working capital, cost of capital and opportunity cost are need to be explained. The capital structure is how an Oil company finances its overall operations and growth by using different sources of funds. It is a mix of a company’s long-term debt, specific short-term debt, common equity and preferred equity. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered part of the capital structure. Working capital is defined as the difference between current assets and current liabilities. Current assets...
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...Capital structure Issues: What is capital structure? Why is it important? What are the sources of capital available to a company? What is business risk and financial risk? What are the relative costs of debt and equity? What are the main theories of capital structure? Is there an optimal capital structure? 1 What is “Capital Structure”? Definition The capital structure of a firm is the mix of different securities issued by the firm to finance its operations. Securities Bonds, bank loans Ordinary shares (common stock), Preference shares (preferred stock) Hybrids, eg warrants, convertible bonds 2 What is “Capital Structure”? Balance Sheet Current Assets Current Liabilities Debt Preference shares Ordinary shares 3 Fixed Assets Financial Structure What is “Capital Structure”? Balance Sheet Current Assets Current Liabilities Debt Preference shares Ordinary shares Fixed Assets Capital Structure 4 Sources of capital Ordinary shares (common stock) Preference shares (preferred stock) Hybrid securities Loan capital Warrants Convertible bonds Bank loans Corporate bonds 5 Ordinary shares (common stock) Risk finance Dividends are only paid if profits are made and only after other claimants have been paid e.g. lenders and preference shareholders A high rate of return is required Provide voting rights – the power to hire and fire directors No tax benefit...
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...Capital Structure Decisions: The Basics Capital structure theory Overview of capital structure effects Business versus financial risk The effect of debt on returns Basic Definitions • • • • • V = value of business FCF = free cash flow WACC = weighted average cost of capital rs and rd are costs of stock and debt re and wd are percentages of the business that are financed with stock and debt. • VU = value of unleveraged business • VL = value of leveraged business Capital Structure Theory • MM theory – Zero taxes – Corporate taxes – Corporate and personal taxes • Trade-off theory • Signaling theory • Debt financing as a managerial constraint MM Theory: Zero Taxes • MM prove, under a very restrictive set of assumptions, that a business’s value is unaffected by its financing mix: VL = VU • Therefore, capital structure is irrelevant. • Any increase in ROE resulting from financial leverage is exactly offset by the increase in risk (i.e., rs), so WACC is constant. MM Theory: Corporate Taxes • Corporate tax laws favor debt financing over equity financing. • With corporate taxes, the benefits of financial leverage exceed the risks: More EBIT goes to investors and less to taxes when leverage is used. • MM show that: VL = VU + TD. • If T=40%, then every dollar of debt adds 40 cents of extra value to business. MM relationship between value and debt when corporate taxes are considered. Value of business, V VL TD VU Debt 0 Under MM with corporate taxes, the...
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...------------------------------------------------- An analysis of capital structure of NEXT Programme of Study: MSC INVESTMENT Module: International Treasury Management Tutor: Students ID Number: Date: 23/3/2016 Programme of Study: MSC INVESTMENT Module: International Treasury Management Tutor: Students ID Number: Date: 23/3/2016 Contents 1. Introduction 3 2. Capital structure 4 2.1. Theories 4 2.2. Types of capital 6 2.3. Sources of capital 7 2.4. Reasons of conducting different capital structure 9 3. Capital Structure of NEXT 11 3.1. Comparative analysis of internal and external financing of NEXT 11 3.2. Comparative analysis of debt capital and equity capital of NEXT 13 3.3. Comparative analysis of current debt and non-current debt of NEXT 15 3.4. Financial performance of NEXT 2013-2015 17 4. Conclusion 19 5. Reference 20 6. Appendixes 22 Appendix I 22 Appendix II 23 Appendix III 25 Appendix IV 27 Appendix V 29 Appendix VI 30 1. Introduction Capital structure of firms is arguably one of its most important choices, as Milken (2009) said “It doesn't matter whether a company is big or small, capital structure matters. It always has and always will”. Most companies pay much attention to their capital structure, NEXT is one of the good representative among those companies. NEXT, founded in 1864, now is the largest apparel corporation in UK, which currently operates more than...
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...Purchase? It is important to know when it is a good time to purchase items or lease items, as an individual and in the business world. If you purchase an item at the wrong time, it could easily put a company as risk for financial hard times. The following will detail some important factors to review when purchasing or leasing is an option. The Differences between Leasing and Purchasing Both leasing and purchasing has its pros and it cons. The trick is to figure out which would be better for a company’s current financial status. Leasing allows a lessee to avoid large down payments, keep updated materials, lower lease payments due to shared tax advantages, and the property that is being leased does not show as an asset or liability. These are all positive factors if your company is a smaller company and does not have the cash to purchase the material or only needs the material for a limited time. Next are a few pros of purchasing through a capital lease. Leasing payments on an operational lease might be higher than those payments on a capital lease due to interest rates and since the company does not own the property, it must not be abused or used to harshly because it will be returned to the lessor. A capital lease gives you tax breaks such as deprecation, while operational leasing does not. As stated above, operational leases (rental agreements) and capital leases (purchasing leases) both have their pros and cons. Again, it is really the current financial status of the company...
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...grow your business, one thing is for certain: You’re going to need money. Debt and equity financing are two different financial strategies: Taking on debt means borrowing money for your business, whereas gaining equity entails injecting your own or other stakeholders’ cash into your company. Two ways of bringing in capital to an organization are through Debt financing and equity financing. One of the resources for debt financing is through loans and lines of credit. Some of the loans include a small business loan (SBA loan). The Small Business Administration (SBA) has a loan guarantee program that allows small and minority-owned businesses to borrow money for various business purposes. The SBA does not issue loans, but it guarantees the loans that are made under its programs by commercial banks and other lenders. The SBA requires that a detailed loan application package be provided to the lender from any business requesting an SBA loan. These loans are a good option for businesses that have no other source of debt financing. The other means of obtaining capital is through a line of credit. A line of credit is a bank loan where a business can draw out funds whenever money is needed in the business. Companies with seasonal sales patterns draw on their lines of credit during the slow times to pay the bills and then pay the money back during the high season. Lines of credit are usually only available to well-established businesses that have previously raised capital through an...
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...Running Header: Business Financing and the Capital Structure 1 Business Financing and Capital Structure Clifton Williams Strayer University Professor Henderson Fin 100 May 24, 2014 Business have to make many financial decision that a direct impact on operations and the ability to successfully compete in the marketplace. I will assume that I am a financial advisor to a business. I will give advice that I would give to the client for raising business capital using both debt and equity options in today’s economy. I will give advantages and disadvantages of each option. I will summarize the advice that I will give the client on selecting an investment banker to assist the business in raising capital. I will discuss the historical relationships between risk and return for common stock versus corporate bonds. I will explain the manner in which diversification helps in risk reduction in portfolio. I will support my response with actual data and concept learn from class. As financial advisor to a business I will give my client advice on raising business capital using debt and equity capital with their advantages and disadvantages. As my clients advisor I would describe the two most common types of financing which are debt and equity capital. I would tell them the difference between the two and the advantage and disadvantage of the two. Debt capital is an agreement contract between lenders and companies trying to start or grow its organizations. All...
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