FINANCIAL ANALYSIS

Managing financial resources and decisions

Managing financial resources and decisions

Q 1.1) Alternative sources of finance

The ASB food corporation after witnessing comprehensive growth and success in their juice and cafe business is now planning to launch a chain of fast food restaurant within Florida (Adams et al, 2006, pp. 21-47). This proposal would require company to invest around 50 million that would be mainly used for the purpose of construction, marketing, purchasing of raw material, employee initial salary and others.

ASB financial position is very strong and thus management of the company has decided that 50 percent of the initial investment would be generated from equity sources of existing business, whereas, remaining amount would be gathered from bank. In addition to bank loan, company can arrange finance for its new business from numerous alternative sources that are listed as follows

Own finance

Family and friends

Grants

Business Angels (wealthy peoples)

Loans from private organization

Q1.2) Implication of alternative sources identified above

Management of the ASB organization can arrange funds for the start of the new venture from the above listed alternative, however, each of these alternative has certain implication that are briefly stated as follows(Alkaraan & Northcott, 2006, 149-173).

Some of the negative implication of using personal funds for investing in new business is that it reduces overall savings of individuals; it becomes difficult to cope with unwanted circumstances, if business has limited liability that it could reduce the importance of liability shield that is commonly used to protect organizational assets from creditors. Similarly, the negative implication of using funds of family and friend is that it increases the expectation level and that could result in poor decision-making.

On the other hand, negative implication of using grants is that the amount is not fixed and most importantly there is no guarantee that organization would received the grant amount on time and as promised(Brealey et al, 2006, pp. 50-155). In addition to this, major implication of using business angels are (it is not legally bounded and thus increases the risk of fraud, selection of appropriate and experience business angel is difficult, and others).

Q1.3) Advantages and disadvantages of financial sources

ASB Company can arrange funds for its new business from diversified sources, however, each sources has certain advantages and disadvantages thus making selection of appropriate sources a challenging task for companies across the globe. For instance, if company decides to invest using personal saving and assets that it would reduce the acquisition cost, a company does not have to pay interest expense and does not have share the returns with probable investors.

However, drawbacks of using personal finance or other assets is that an individual can lose everything that he once owned and as a result it would become difficult for the individual to cope with unwanted circumstances(Covin et al, 2006, 57-81). On the other hand, probable investors could enable the company to generate comprehensive funds for the launch of new business; these investors could play a vital role in accomplishing business goals, provide support in difficult ...