Financial ratio Essays

Financial ratio Essays Financial ratio Essay Financial ratio Essay You have been asked to identify a range of sources of finance available to Fort Sport Ltd. These can include raising funds through a combination of finance areas. Please identify at least three sources. Fort Sport Ltd is a small private company who began trading in April 2013. The company supplies fitness products online to the public and specializing in mid range sporting goods and equipment. In 2014, it wishes to increase Its activity in the market and as such need to identify a variety of options for finance. As a manager of the Fort Ltd I have to consider the available options to enhance our company to be able to reach our goals to expand our activities and increase income generated by new products, and new marketing projects. Have to identify at least 3 possible sources of financing for our company. Here, I need to make a note that there is a company called The Beneath Group and they would be interested to invest into Fort Sports Ltd, however we also need to do research and analysis to explore the costs in such an investment, and also focus on market research regarding internet related businesses that is expected to grow throughout in the I-J and also world wide. If all these above mentioned points could meet and satisfy both sides the decision can be made for an agreement of an investment by The Beneath Group that is based on facts by our research. : As our company the Fort Sport Ltd is a small company it identifies as SAME or Small or Medium Enterprise. Therefore, our finance opportunities are limited to the options for Games. However, there are still many available financing options to small and medium businesses. SAME in definition Just to clarify what is an SAME I point out that a company with less than 500 employees that will be described as SAME. Other definitions for small businesses: Micro enterprises: those with between one and nine employees Small enterprises: those with ten to 99 employees Medium enterprises: those with 100-499 employees There are two type of findings available for business: -Short term finances -Long term finances It depends on how big is the business and so will be decided what finance source will be used, for a small business its different than for a large corporation. Short-term finances typically finance available for less than year: -Bank overdraft -Bank loans (Short term) -Loans from family and friends Trade credits -Leasing of assets (short or medium term) Eng-term finances typically finance available for more than a year: -Bank borrowings for long term -Secured bank loan on the property or shared capitals -Mortgages on the property -Grants and loans from other organizations or government -Venture capital Finance sources available for Fort Sport Ltd according to my research as lining manager: Option Number 1. The Blue Chip Investments There is an option to get investment from larger companies, especially with the time of new advanced technologies. The hope for a larger profit income is ore certain due to some real success-stories from the last few years, thanks to the constantly growing possibilities over the Internet. Although, the bulk of their investment portfolio is in large steady companies known as blue chips, they often invest in Seems in order to provide a more balanced range of investments, which have potential for higher growth. But this option only recommend to the executives if we have a larger future plan for example a new online sale project that expands to abroad globally. It is require serious planning and a reliable strategy with calculated financial growth. Option Number 2. Small Loans, Bank Loans, Private Loans, Family Loans Based on the numbers seen below consider our company rather small and therefore I would also keep more simple financing options that might be available for Fort Sport Ltd such as Bank Loans and Private or Family Loans. To take too big steps at the time is risky so I would rather recommend one small step at the time and step by step slowly but surely reach our goals. It is probably more suitable for the owners too, as it is a family owned business and to get a large corporation Or Founding Agency involved into the business s a risk that they might as well send a CEO to supervise their investment and the direction of the Fort Sport Ltd. s business strategy would also be at risk to change in the favor of the new investors, and it might not make happy the original owners, the family. Assets Fixed Assets 10000 Accumulated Depreciation 1000 Total Fixed Assets 9000 Current Assets Stock 2500 Debtors 1500 Bank 12500 Total Current Assets 16500 Total Assets Liabilities 25,500 Creditors 3000 Loan 2000 Credit card 750 Total Liabilities 5750 Total Assets Liabilities Equity 19750 Capital Retained Profit 16250 Total Equity 1 8250 Option Number 3. MOB as a Management Buy Out believe Fort Sport Ltd is still small company to get into the stock exchange market, and I will look further options to get the necessary financing from other sources. I would not risk a Bobs in other words a Boy Outs from a larger organization as keep that option for the time only when the Fort Sport Ltd as a company fails to produce income growth and would get into a financial crisis. However, an MOB (Management Buy Out is still a considerable opportunity to get financed and also get our Management more involved into the business and the future of the Fort Sport Ltd. As it is a well known fact that if employees of a firm or company are shareholders then they share a mutual interest with the owners to make the company successful. I believe this is a good way of financing Of the Fort Sport Ltd. Over the years it produced a significant growth and reached to a stage where more funding sources must be considered to be able to continue to be successful on the market. To clarify what does an MOB means: Management Buy Outs (Mobs) has led to the search for better ways of financing Games. This is where the management of the business is given the opportunity to buy ownership and matron of a firm, in the hope they can improve the productivity of the business. Option Number 4. Investment from another company It is to accept the offer for investment from the Beneath Group, which is a company that showed interest to invest into the Fort Sport Ltd. I am as a Manager of the Fort Sport Ltd would be interested about such an arrangements but it needs to be analyses first what is the cost of this kind of agreement for us and also investigate what do we benefit from such a contract and what is against it. Important to see the positive and negative effects of this arrangement for the future of our company the Fort Sport Ltd. Ownership percentages, etc. Option Number 5. Combined financial sources Me personally think this would be the best solution for financing the F-rotor Sport Ltd for the future as we are still not big enough as business to get financed according to a large companies opportunities, such as Stock Market, etc. We still need to be more realistic as our current fixed assets are not enough to secure us a long-term loan from a Bank for example, so we need to look for Private Investors, maybe groups such as The Beneath Group and also for loans fixed by family and friends, employees and maybe to combine these two elements would bring us the best results. To accept a smaller % investment from the Beneath Group in return they will get a smaller part in % of the ownership in the Fort Sport Ltd and as well as the loans from family members, private investors, employees, managers would be offered a chance for become an owner in part of the business of the Fort Sport Ltd. These type of financing nowadays are getting more popular as the company do not rely on a Bank entirely or another Finance Management Group instead deals with TTS own financing behind closed doors with the employees, managers and family members whos becoming a shareholder of the company. Conclusion And if the help available from an outside entity such as Besom Gregory who manages SAME to get the best finances available for them and ensure the best growth then would definitely get into such a partnership too, to find our best finance solutions! 1. 2 What are the legal, financial and dilution of control implications (percentage ownerships) and a risk of bankruptcy? 1 . In the area of Financing -? Funds are procured from long-term sources as well as short-term sources. Long-term funds may be made available by owners, shareholders, lenders through issue of debentures / bonds, from financial institutions, banks and public at large. Short-term funds may be procured from commercial banks, suppliers of goods, public deposits etc. The finance manager has to decide on optimum capital structure with a view to maximize shareholders wealth. Financial leverage or trading on equity is an important method by which return to shareholders can be increased. . For evaluating capital expenditure (investment) decisions, a finance manager uses various methods such as average rate of return, payback, maternal rate of return, net present value and profitability index. 3. In the area of working capital management there are various methods for efficient utilization of current resources at the disposal of the firm, thus increasing profitability. The centralized method of cash management is considered a better method of managing liquid resources of the firm. 4. In the area of dividend decision, a firm is faced with the problem of declaring dividend or postponing dividend declaration, a problem of internal financing. There are tools to tackle such situation. 5. For the evaluation of a firms performance there are different methods. For example, ratio analysis is a popular technique to evaluate different aspects of a firm. 6. The main concern of the finance manager is to provide adequate funds from the best possible source, at the right time and the minimum cost and to ensure that the funds so acquired are put to best possible use through various methods / techniques are used to determine that funds have been procured from the best possible available services and the funds have been used in the best possible way: Funds flow and cash flow statements and projected financial statements help a lot in this regard. The legal implications are to calculate % of ownership after each investments correctly and officially get investors as shareholders of the company. Partnership with Beneath Group -? with legally correct contract to make it clear what will be the role of the Beneath Group as only investors or they want to become involved in the business of Fort Sport Ltd as active participants of the work -Calculate cost for such actions -Make business strategy planning for the future to set our goals where do we wan t to be from this point a year later Risk of Bankruptcy and profit minimization objective gives rise to a number f problems as below: 1. Profit minimization concept should be considered in relation to risks involved. There is a direct relationship between risk and profit. Many risky propositions yield high profit. Higher the risk, higher is the possibility of profits. If profit minimization is the only goal, then risk factor is altogether ignored. 2. Profit minimization, as an objective does not take into account time pattern of return. Proposal A may give a higher amount of profits compared to proposal B, yet if the returns begin to flow say 10 years later, proposal B may be preferred which may have lower overall profits but the returns flow is ore early and quick. 3. Profit minimization, as an objective is too narrow. It fails to take into account the social considerations as also the obligations to various interests of workers, consumers, society as well as ethical trade practices. Further, most business leaders believe that adoption of ethical standards strengthen their competitive positions. 4. Profits do not necessarily result in cash flows available to the stockholder. Owners receive cash flow in the form of either cash dividends paid to them or proceeds from selling their shares for a higher price than paid initially. Modern Approach The alternative to profit minimization is wealth minimization. This is also known as Value minimization or Net Present Worth (NP) minimization. Value is represented by the market price of the companys equity shares. Prices in the share market at a given point of time, are the result of many factors like general economic outlook, particular outlook if the companies under consideration, technical factors and even mass psychology. However taken on a long-term basis, the share market prices of a companys shares do reflect the value, which the various parties put on a company. Normally, the value is a function of two factors: The likely rate of earnings per share of a company (PEPS) and The capitalization rate PEPS are calculated by dividing the periods total earnings available for the firms common shares by the number of shares of common shares outstanding. The likely rate of Earnings Per Share (PEPS) depends on the assessment as to how profitably a company is going to operate in the future. The capitalization rate reflects the liking of the investors for a company. If the company earns a higher rate of earning per share through risky operations or sky financing pattern, the investors will not look upon its shares with favor. To that extent, the market value of the shares of such a company will be low. If a company invests its fund in risky ventures, the investors will put in their money if they get higher return as compared to that from a low risk share. The market value of a firm is a function of the earning per share and the capitalization rate. The important issues relating to maximizing share prices are Economic Value Added (EVA) and the focus on stakeholders. Economic Value Added (EVA) is a popular measure used by many firms to determine whether an investment proposed or existing contribute positively to the owners wealth. EVA is calculated by subtracting, the cost of funds used to finance or investment from its after-tax-operations profits. Stakeholders are group such as employees, customers, suppliers, creditors, owners and others who have a direct economic link to the firm. A firm with a stakeholder focus consciously avoids actions that would prove detrimental to stakeholders. The goal is not to maximize stakeholder well being but to preserve it. It is expected to provide long run benefit to shareholders by maintaining positive stakeholder relationships. Such relationship should minimize stakeholder turnover, conflicts and litigation. Clearly, the firm can better achieve its goal of shareholder wealth minimization by maintaining cooperation with other stakeholders rather than having conflict with them. 1. 3 After assessing the possible sources of finance, you must choose a source(s)that would be appropriate for Fort Sport Ltd. You are required to: Evaluate benefits of different sources for Fort Sport Ltd Match term of finance to term of project As above mentioned prefer Option Number 5 (from my answer for question number 1 . ) where we do not give too much power to an outside entity such as an outside investor group as the Beneath Group but still get them involved in a smaller scale and in the same time offer a Percentage of Ownership package for our own managers, employees, families and friendly private investors. In this way the original ownership would not get out of power as they could keep still their ownership even over 50% and the rest could be offered combined to The Beneath Group and employees, etc. The Beneath Group would become as a partner and the risk of bankruptcy would get to the minimum if we get financially involved our employees as well. As earlier stated already if an employee is financially active within the company then it becomes his/her own business interest as well to make our company successful and presumably this will result in strong will among the owners and employees to make the company successful.