FINANCIAL MANAGEMENT

Financial Management



Financial Management

Introduction

Working as the Financial Manager of Vitas plc, it is a listed manufacturing firm, having divisions in many countries and trades internationally. When the directors of the firm makes some strategic decisions they need to have a broader understanding of the most important and key areas of the firm and its business that are, capital structure and investment appraisal. Sources of capital structure includes the information about the debt and equity of the company, its merits and demerits and the importance of gearing ratio while raising some new finance. However, the investment appraisal includes information about the investment appraisal methods and the firm's cost of capital. In the first part we will discuss about the sources of capital and in the second part about the investment appraisal methods.

Sources of Capital

Every business is in need of some kind of capital investment. Business that are starting up requires capital to purchase assets in order to establish the business and provide working capital until they reach breakeven point however, the business that already exist often look for capital for its expansion or diversification of risk. The sources of capital involves some merits and demerits too which varies for every business. In order to start with the hunt of capital investment a business needs to assess its capital requirements. The keys in order to assess your needs and requirements are accuracy and integrity. The company needs to see its cost and return on investment forecast (www.springboardenterprises.org). The company should forecast its cash flow taking into account the inflation and rise in the prices of commodity. The company should make sure that it cuts off its needless expenses in order to improve on its overheads and margins. The accountants should review the findings regularly.

Before the business proceeds it should keep in mind that the lowest risk option for raising capital is to find out what it requires from its own savings or assets. In order to secure the investment from an investor might require surrendering equity shares in your business and some control as well. If you borrow an amount from some lender you will have to pay some charge or interest as well. The firm should assess if it can raise capital through selling its assets that are in stock and unwanted or simply require restructuring of the cost and saving over the time period in order to achieve the capital goals f the business. When an accurate assessment is made for capital requirements of the business, it should then look at how it will present its business to the potential investors or creditors (www.springboardenterprises.org). For this a firm needs to have a business plan. The investors and creditors both want to see the business case or plan that is accurate and involves honest approach. It will not only present the firm's research and findings in a credible form but it will also help you express your ideas. Your business plan should include all the necessary information that an investor or ...