MANAGING FINANCIAL RESOURCES AND DECISIONS
Report to Directors of the enterprise Agency
Following report is prepared to provide information related to financial management of the business organization or of Enterprise Agency. In this report 8 sources of finance along its legal, dilution in control and bankruptcy implications. Cost and tax effect on each and every sources if finance that has been identified were mentioned in this report. What sources of finance shall be used for business expansion or other projects that organisation were mentioned in the report.
1.1 and 1.2: An identification of 8 sources of finance that participants may choose together with an assessment of the legal, dilution n control and bankruptcy implication of each source.
Following is the sources of finance that can be used for different project that organisation undertakes:
1: Equity shares- Equity shares are owner’s fund that can be used for the business projects. Equity shares represent share in the total capital or ownership in the business organisation. Major funds can be gathered by issuing equity shares by the organisation but there is high cost and legal implication on equity shares(Kesari 2012).
2: Bank Loan- It represents that part of non-current liabilities in the statement of financial position which is required to be repaid on equal instalments from revenue earned during the year. Bank loan can be of short term, medium term and long term and is taken on the basis of security provided by organisation.
3: Debentures- Debentures are acknowledgement of the debt obtained by the business organisation from the investors. Debentures are repayable or redeemable by the organisation by using various methods. For issuing debentures, business organisation is required to get registered first then only they are able issue debentures(Wolff 2014).
4: Preference share- Preference shares are those shares that are issued by the organisation for raising funds from the various investors. Institutional investors are the major investors in preference shares. It carries preferential right over equity shares in terms of dividend payment and has fixed per cent of dividend.
5: Hire Purchase- Hire purchase is the transaction that is undertaken for purchasing asset (that includes huge investment) on instalment basis. Hire purchase is the transaction under which organisation is required to pay for purchased asset and interest is charged on the outstanding hire purchase price.
6: Bank Overdraft- It is the sources of funds or it is rather facility that is provided by bank to its customer. Under this facility, when customer requires funds in the situation of zero balance in the bank account, then bank still makes payment to creditors of business organisation. On overdraft amount interest will be charged by the bank(Kesari 2012).
7: Venture Capital- It is the source of finance that can be taken by the business organisation. Venture capitalist is the investors that invest funds in the business organisation to be used for business operations. There are generally higher cost of finance that organisation undertakes and risk is at higher side.
8: Trade Credit-Trade credit can be used by the business organisation in their normal course of business. Time provided by creditors to make payment for the purchases that were purchased by the business organisation. These are actually deferment of payments to creditors.