FINANCIAL RESOURCES

Managing Financial Resources and Decisions



Case Study: London Woods Ltd

Task 1: Sources of Finance

Sources of Finance available to London woods

There are many options available to London Woods to finance their operations and assets. Each option has different costs and benefits. The main options are as followed:

Internal Sources of Fund

Internal source of finance are usually Self Generating source of credit which are pumped by business owners and this source type do not have any business costs. In order words, it is equity financing (Bendrey, West, 2012, p. 16).

Personal saving of the people involved in the business

Retained Earnings of the company i.e. is the undistributed revenue of the company

Working Capital i.e. money which is available with the company for daily activities Current assets - Current liabilities

Fixed assets sales i.e. excess of fixed assets can be sold to raise finance

External Source of Funds

External source of funds has been divided into two types:

Ownership Capital

Non Ownership Capital

Ownership Capital: This is the capital that is invested by the owner of the company for certain project of investment like London woods for purchasing machines. These are always in form of shares i.e. ordinary shares and preference shares. These have right in the profit generated by company i.e. in form of dividends. These shares are further divided into cumulative, Redeemable, Participating, convertible preference shares. Initial Public Offering is first sale of stock by private company. Through this company raise capital from broad range of investors (fao.org).

Non-Ownership Capital: Capital from Non-Ownership rose through debt and it does not permit any profit sharing with the lenders. The purpose Non-Ownership Capital is to return the borrowed amount along with interest. Different type of Non-ownership capital Debenture, Bank overdraft, Loan (short and Long), Hire purchase, Leasing, Grand by the government, Venture capitalistic, Factoring, discounting on Invoice and Receipt and issuance of Bonds or certificate (fao.org).

Impact of the Sources of Finance you have identified

The above mention sources of funds have certain implications and this implication has been sound tacit before their selection.

Self-Financing

This is source of finance that entirely belong to London woods or its owners. This has few benefits which are related to cost to the company that is nil, excluding profit and dividend distributions.

Bond Issuance

The issuance of Bonds would be an attractive alternative for London Woods over the other funding sources since business usually seeks sustainable capital investment. The adoption of this source would offer company high flexibility in terms of capital. Beside this, London can also offer bondholder to convert the bonds into a number of common shares in future.

Leasing

London Woods also have an option to lease their assets. London Woods can use property whether it is movable or immovable and making regular payment to the lessor in order to use for certain duration. This duration for financed property is minimum two years and real estate minimum duration is ten years.

Issuance of Shares

Issuance of shares would affect balance sheet of London Woods i.e. on assets side it will be posted as money ...