FINANCIAL ANALYSIS

Financial Analysis

Financial Analysis

a. In the company's current position you are acutely aware of the dangers of over trading. Discuss what those dangers are and how they might be overcome.

Growth is considered to be the most important aspect of any major business. Thus, businesses are highly growth inclined. Although, this growth is the main goal of any business but at the same time it can also be the worst enemy of the business. There are several examples of such business that fell apart due to extremely rapid growth, especially when the business is not prepared for such unforeseen growth. When the businesses fail due to rapid growth, it is termed as overtrading (Robinson, J. 2006, p.40).

One may think that if a business is growing, that means it is a positive sign but in actual if a business grows that fast then things become unmanageable, thus things start to fall apart. Before the top management would realize the business is already in a loss. However, a business may avoid such issues by controlling the pace and not getting to excited at the thought of growing a business rapidly. It has become a universal fact that overtrading always leads to a business failure, thus a company must take corrective measure immediately to overcome this issue.

b. Identify two different sources of short term finance available to the company and discuss the strengths and weaknesses of each source, were it to use it to finance its proposed expansion.

Financing through Bank Loan

If a company wants to expand to reach much larger potential target market and cater them then the best option I would recommend is to get a Bank loan; Bank loan is the most common method of obtaining funds. You take the right amount of credit, but you need to convince the bank that you'll be able to extinguish it. To do this, you must provide a business plan, and the larger the amount, the more difficult to take the credit. In many cases the lender often keeps some kind of security against the loan so that if the business suffers from financial difficulty the loan money could be recovered.

With respect to getting a bank loan in order to expand the enterprise the main issue is of providing for the security in order to back such a big loan, which is often difficult to provide for many people looking to buy a business.

Financing through Shares

In the case of a large business looking to expand often turn to selling their shares to family and friends in the case of being a public limited company or on the stock market if the company is a private limited holding. Money generated from selling shares can then be utilized in order to expand the business as required by the management.

In the case of a large business wanting to expand by raising finance through selling shares there might be a possibility that the existing shareholders might not have enough finances and other people ...