FINANCIAL ANALYSIS

Financial Analysis



Finance - Financial Analysis

1. Sources of Finance - Alpha plc

Alpha plc has decided to introduce graduate intake programme. The following are the sources of finance available for companies.

Internal sources of finances: These have been divided into five categories.

Owner's investment: Money that is invested by owners themselves in form of additional capital or start-up capital and its long term source of finance.

Advantages: No repayment, no interest or dividend payment

Disadvantages: Limitation on investment amount

Cost: Nile

Retained Profits: Companies that has been operating for more than a year can use this saving. This is a retained profit and is part of medium or long-term source of finance (drhea.ie).

Advantages: No repayment, no interest or dividend payment

Disadvantages: Not for new business, due to plough back companies usually does not have enough amounts.

Cost: Nile

Sale of Stock: Selling an unsold or unnecessary stock and is part of short-term source of finance

Advantages: Fund can be raise immediately, holding cost of stock reduce.

Disadvantages: Reduction in stock price.

Cost: Nile

Sale of Fixed Assets: Selling unused or unnecessary fixed assets and is part of medium-term source of finance.

Advantages: Efficient utilization of assets.

Cost: Nile

Disadvantages: Slow means for raising finance and companies usually do not have excess assets.

Debt Collection: Company should immediate collect their debts from debtors and this is not so effective and considers being short-term source of finance (drhea.ie).

Advantages: Improve receivable management and strong image in front of lenders

Disadvantages: Risk of bad debts

External sources of finances: Finance that is obtained from third party (Needham, 1999, pp. 99).

Bank Loan: Amount borrowed from bank on fixed rate.

Advantages: Instalment reduces burden, reliable at reasonable cost, interest payment of tax-deductible

Disadvantages: Penalty fees can be a burden and increase cost of loan, Limitation on borrowing, cash flow problem on high borrowing, require strong collateral.

Cost: Interest payment

Bank Overdraft: Withdraw extra amount from bank account and is part of short-term source.

Advantages: Flexible as it maintain cash flow as no cost is associated for certain time duration and it can be quickly arrange

Disadvantages: Cost is applied or charged is higher than loan, can be recall any time by bank.

Cost: Bank Overdraft Fee and charges/Interest

Additional Partners: Including more partners can be beneficially for bringing finance to company

Advantages: No repayment no interest payment

Disadvantages: Dilute control of partner, distribution of profit

Cost: Bank: Nile

Share Issue: Company can raise fund from public through issuance of shares and a long-term finance.

Advantages: No repayment no Interest Payment, can raise huge amount

Disadvantages: Dividends Payment, voting to the shareholder.

Cost: Dividends

Leasing: Offer Company to acquire assets without paying full amount, it's like a renting of assets with installment. A Short term source of finance.

Advantages: No Large Outlay, Tax benefit, Monthly payment is much affordable than paying large amount.

Disadvantages: No ownership till entire amount is paid, Long Term Expense along with Maintenance expense.

Cost: Lease interest payment

Hire Purchase: Similar to Leasing but hirer has an opportunity to purchase the assets. It includes Iinitial deposit and regular payments of assets.

Advantages: Purchasing facility, longer payment terms, at end of period asset ...