FINANCIAL ANALYSIS

Softwood Ltd Financial Analysis

Softwood Ltd Financial Analysis

Discussion

Task 1

Sources of finance can be described as the options available for an individual or a firm to obtain the required funds or cash to finance or invest in their current business or to start a new business. Once the required amount has been calculated, it is important for the individual or the firm to get a know how of the various options available and also which of these options would be the most beneficial. It is essential to know the options available for the financing as it help to select the best finance option available for the business. Finance can be obtained through various sources, like retailers, suppliers, financial institutions, finance companies, factor companies, self funding, private investors, family or friends, stock market, government, venture capitalists etc.

Personal saving option of financing is mostly utilized by small enterprises where the proprietor has sufficient savings available to use them accordingly. In this paper both the companies are small enterprises and thus dependent on this category of source of financing.

Debenture is a common form of financing in terms of loans where the interest is either fix or variable depending on the type of agreement between the creditor and acquirer. Mostly the loan is secured against any asset approximately equalling to the investment. Thus, the loan company will have a legitimate shared interest in the investment.

If a business lacks the necessary funds and cash required to purchase machinery or equipment have another option that is to lease. Leasing is a method where in a business makes an agreement with the asset owner regarding the use of the asset and pays the owner a set fee. The amount of the payment depends on the terms of the contract. Equipments, assets and such assets are those which are considered to be very expensive.

Cost of sources of finance and impact on financial statements (FS)

Capital structure decision is very significant since the question arises where her there is an optimal mix of capital and debt which a c company should try to achieve. If company is looking for obtaining debt Capital Company should earn enough profits to cover its interest charges before anything is available for equity. On the other hand if borrowed funds are invested in projects which provides return in excess of cost of debt capital, then the shareholders will enjoy the increased return on their equity. General cost of debt of each source as discussed in above is greater than the cost of equity financing. However tax savings can be enjoyed by the company in the cash of interest payments on debt financing. In the case of issuing shares to the public company has to incur considerable amount of expenses which are not tax deductible. As far as companies are concerned debt capital is potentially attractive sources of finance because interest charges reduce the profits chargeable only to corporate tax.

There could be numerous distinctive criteria's for selecting the suited and right capital financing ...