Essay on Sources of Finance

INTRODUCTION:

The sources of finance for the launching of the new revolutionary products are based on internal and external sources. The financial report of the company already given will however determine the best option to be adopted by the company. The company can as well source the funding from more than one area depending on the advantages and benefits from that source.

The Internal Sources of Funding

Retained Profits:

The profit that is being generated by the company can be held back and should not be distributed to shareholders. This money will be reinvested in the production of new revolutionary product. Retained profits or earnings are usually affected by losses and it is a very vital means of increasing the company’s capital. Petit (2007) acknowledged this form of raising capital as the first priority in funding new projects within an organization.

Sales of Assets:

Sales of unwanted assets can as well generate some needed funds for the launching of the new products. This is also being regarded as an option for raising more capital within an organization.

Working Capital:

Absolute can be maintained on the working capital of the company which is used to run day to day activities of the company. The working capital is the current assets less current liabilities of the company (Elliot B and Elliot J, 2005).

In the scenario of the company, the internal source of finance might not be sufficient for the funding of the new revolutionary product. Therefore, there is need to explore the external source of finance which are raising more equities, bank loan or leasing. Before this, some vital financial parameters of the company must be acknowledged. These are:

• The current shareholders equity of the company is £800m

• The current long term debt of the company is £400m

• The current Earnings before Interest and Tax (EBIT) of the company is £100m

• The current Depreciation of the company is £50m

• The current Operating Cash Flow...