FINANCIAL RESOURCES

Managing Financial Resources & Decisions



Task 11

Task 23

Task 36

Task 49

1.Market to Book Ratio9

2.Asset Management Ratios10

3.Liquidity Ratio12

4.Profitability Ratio13

5.Debt Ratio15

6.Capital Structure15

References17

Managing Financial Resources & Decisions

Task 1



Jack Russel Plc (Amounts in pounds)

 

 

Ordinary shares

200,000

 

Debentures (5%)

50,000

 

 

250,000

 

 

 

M.V. of shares

1.5

 

Loan

95

 

 

 

(a). Gearing Ratio:

Debt + Preference Shares

 

 

Ordinary Share Capital

 

 

 

 

Gearing Ratio:

0.25

 

 

 

 

 

 



If Jack Russel Plc, wants to raise 20,000 pounds more it depends on how the company is raising these new funds. The way the company raises these new funds has an impact on the company and its financial ratios or in particular it's gearing ratio. Like the way the company can raise funds are many similarly there is variety of financing these funds. However; raising start up capital is more necessary for the businesses. Normally large corporations use debt financing to raise their capital. The reason being that the interest rate charged on debt financing is generally cheaper then equity. However; there are two kinds of debt on is short term and the other is long term. Short term debt is when company needs capital in an emergency situation and in a very short span of time. Short term debt is cheap since it involves less risk (www.accountingformanagement.org). The interest charged on long term is however higher as there is much larger risk associated with it. Debt is also considered as safe investment as compared to equity investment. Most of the companies raise capital only for the reason of market development and growth, new aims and projects and for marketing purposes. The companies in order to obtain loans have to keep their assets as collateral to apply for the loan. The interest rate charged on loans that are given with or without collateral differs. A loan that is given out keeping collateral has a lower interest rate as compared to the one without collateral. The reason being because if the company defaults, it will feel secure if the loan provider keeps its collateral in case it liquidates. The economic situation prevailing in a country will also affect the company's decision to raise funds through debt or equity. If the economic situation is bad or worst the financial institutions do not plan to lend funds because there are higher chances for companies to default and a higher interest rate is charged so it becomes difficult for them to pay back the loan. However; even in a bad economic situation, the companies need to raise funds it can do it through obtaining loan from government. This part is secure and safer because government loans are safe and less risky as the interest rate is lower as compared to any financial institution loans. In a boom economic scenario, companies will raise capital or funds through debt financing although the interest charged is higher so they can get loans from the financial institutions at a higher rate. In a boom economy, the company works harder to raise funds quicker than its competitors so they do not wait for the equity funds because it takes much longer time to raise ...