MANAGING FINANCIAL RESOURCES

COVER PAGE

Managing Financial Resources

Contents

Learning Outcome 11

Task 11

Task 35

Learning Outcome 26

Task 16

Task 28

Task 311

Task 411

Learning Outcome 312

Task 112

Task 213

Task 313

Learning Outcome 415

Task 215

Task 316

Conclusion and Recommendations17

References18

Learning Outcome 1

Task 1

Introduction

Woolworths

Woolworth is the largest retail store having several branches across New Zealand and Australia. It is the largest retail sales company in Australia and New Zealand. It is one of the largest liquor stores and 19th largest retail store in the world. Woolworth operates in the Grocery Store industry and the sector is consumer defensive. Woolworth Employees 190,000 employees and have a market capitalization of AUD40.7Billion. In 2012, it had Net Income of AUD1817million (Woolworths, 2012).

Long term

There are two major sources of finance, internal financing and external financing. Internal financing is obtained by the company when it

Shares Issue

A share issue is the long-term source of finance and comes under the category of equity financing. The company issues additional shares or new shares in the market and generate cash in order to finance the operational and capital expenditure. Share issue is the cheapest form of source of finance available to the company. The cost of ordinary share is the dividends. It depends on the company's objective whether to pay the dividends or not depending upon the business cycle. If a company is experiencing growth, it will not be liable to pay the dividends because the profit will be re-invested in order to finance the expanding operations of the company (Bannerjee, 2005, p.47).

Debentures

Debentures are the long-term bonds issued by the company to the public. Debentures fall under the category of Debt financing. Company pays the fixed amount of interest to the Debenture holders. Debentures are not backed by collateral. it is an inexpensive source to obtain finance. Some Debentures come with a convertible feature as well in which debenture holders have an option to convert the debenture into an equivalent amount of shares. Debenture cost is tax deductible, which means that interests will provide savings in taxes (Bannerjee, 2005, p.47).

Right Issue

Right issue is the additional issuance of equity to the existence shareholders. The company offers ordinary shares to the existing shareholders for a specified price. The price is usually less than the market price of the shares. Through right issue, company avoids additional financial costs, which might have incurred when issuing debentures and bonds or obtaining long-term finance. Right issue is an inexpensive form of raising finance because cost of underwriting, brochures and notices are avoided. Right issue has the high probability of raising finance for the company because, existing shareholders will purchase the shares as compared to the offering made to the general public (Bannerjee, 2005, p.47).

Corporate Bonds

The company issues corporate bonds in order to finance its expanding operations. Corporate bonds are mostly secured by collateral. It involves higher cost because interest payments are involved which include the interest rate risk as well as the cost of placing the collateral or a credit line in case of default (Bannerjee, 2005, ...