FINANCIAL RESOURCES

Managing Financial Resources and Decisions



Managing Financial Resources and Decisions

Introduction

Every business requires finance to run its operations and production processes and helps in expanding the business. Finance is considered as the core element in order to reach any decision pertaining to business expansion therefore, it should be managed and utilized wisely and efficiently. Finance can be used in two different ways to fulfill company's financial needs, one is internal source of finance and other is external source of finance. However, each business must make an evaluative decision while considering any source of finance in terms of associated cost and benefits. We can divide sources of funds on the basis of long term and short term availability of funds, equity and debt financing (Dobrovolsky, S. P., 1951, pp. 64-81).

Task No. 1

Internal and External sources of Finance

Internal sources of funds available to the J. Brown Ltd as per the given scenario are Cash available in Bank Account, cash available from profit retention, and reduced use of working capital. J. Brown Ltd can utilize the stream of cash in form of profit incurred in the previous years and utilize it in expanding business instead of distributing it in form of dividends to shareholders. This phenomenon is also known as reinvestment of profit and usually 60% of all investments are done by utilizing profits and in this case it is estimated to be £5000. J. Brown Ltd has adequate cash available in bank accounts i.e. £150,000. It indicates that business has sufficient cash available to meet its short term liabilities required for this investment. J. Brown Ltd can also save lots of cash by managing its working capital adequately in form of reducing extra stock level, improvising controls of credit procedures, and improvising the debt collection from debtors. It can be done by improvising the over all operations of the business (Dobrovolsky, S. P., 1951, pp. 64-81).

External sources available to J. Brown Ltd are long term and short term borrowing, issuing shares, and utilizing private funds of directors and board members. The total requirement of funds to be raised for the expansionary activities by the company is £2,450,000 after deducting funds to be raised by internal sources. Since, it is a public limited company therefore, it can raise funds by issuing shares in form of ordinary and preference shares. In addition, it can also consider raising funds via issuing debenture and loans from banks for long term and bank over drafts for short term borrowings. Usually firm utilizes long term loans and debentures to purchase necessary buildings, land, plants, and vehicles for business expansion process where as, other costs like selling and administrative expenses can be covered by board's funds and raised equity.

Finance Products

The finance products that could be utilized by the company are ordinary shares, and Banks over drafts. Ordinary shares are also called equity shares, or securities. The investors in the market purchase shares issued by the company for a stated price from tock ...