Managing Finances



Managing Finances

Introduction

There can be two major ways through which any public limited company (PLC) can finance, which is short-term financing and long-term financing (Jordan 2008 pp. 15 - 45). Both of these major financial resources have different implications with them and the decision to finance the company depends on the situation and different scenarios that a company is facing.

Task 1

Within the two major sources of finance, that is short-term financing and long-term financing, there are various categories and means by which funds can be raised for the purpose of meeting the financial requirements of a public limited company. Although long-term debt financing can fulfil any funds requirement for a company, but the costs associated with each chosen source of finance is to be analyzed against the fund requirement in order to ensure that fund raising does not result in high costs. There are 5 scenarios given below for which a different source of finance will be used in order to meet the requirement.

A Number of Invoices Occurring on Regular Basis

For a public company that deals in products or services that are sold out on daily or weekly basis. This means that the working capital management needs to be very efficient and well forecasted. However, at times the fluctuations in the daily sales may make it almost impossible to accurately calculate the working capital requirements, which create a gap between the total liquid asset and the total current liabilities causing the cash and cash equivalents to run short of requirement. In this case, the best possible solution would be having a short-term financing for the invoices that occur on regular intervals. An increased bank overdraft limited would efficiently settle this issue with minimal cost incurred. Public companies have to make regular payments, which require sufficient liquid cash or bank balances. The increased overdraft limit would enable the company in paying for invoices that exceed the total bank balance, which obviously will be replenished on frequent basis. This would eliminate the issue of instant cash requirements for paying for invoices on regular basis.

Expansion into Europe Requiring 2 Million Pounds

The expansion into another region requires heavy investments, as stated here totalling 2 million pounds. This means that large sum of money need to be generated for the purpose of financing the project. This large sum of money cannot be generated from short-term financing and the company will have to opt one of the two major long-term financing methods, equity financing or long-term debt financing. The better option in this scenario will be opting for long-term debt financing, which will have to be paid back later. The debt financing will pool in large and sufficient amount of money instantly for the purpose of expanding operations into Europe. This will ensure that the company's expansion is made possible at a fixed interest cost that has to be paid on yearly or pre-decided basis.

One Large Invoice from a FTSE100 Company

Dealing with regular invoice is a part of working capital management as already discussed in ...