Debt and Credit Financing (This is assuming that the company is "normal" in terms of its financing and is not an exception like a vanity project or a form of nepotism.)The first basic way in which a company can finance itself is through borrowing money, that is, through the process of acquiring debt. This is the same process that individuals use in borrowing money to pay for a mortgage or a new car.
While there are general rules that each company can rely on to help it determine the best strategies for determining how to finance its short-term and long-term goals. However, as this analysis shows, each company must make financing decisions based on its specific needs and market position.
Companies exist to make money. However, in order to be able to create the products or services with which they can make money, companies also have to be able to bring in money before the point of sale. Building up an inventory requires money (or other forms of capital) and no company can succeed unless it has a well-thought-out and well-defined strategy for financing its ongoing expenses as well as any extraordinary long-term expenses such as building a new factory.
Balancing long- and short-term goals is difficult enough, especially given how volatile the overall economic marketplace can be (as we have all seen to dramatic effect over the last few years). What makes decisions about how to design the financing mix for a company even more difficult and complex is that each company has a particular mixture of debt and equity financing that will serve it best at any given moment.
This mixture is determined by overall market conditions, the position the company holds in its particular market, the history of the company (including such factors as whether it is a start-up, etc.), how closely the company's finances are held (is it a publicly traded company or not), and the nature of its product (including whether it is seasonal, whether it is highly subject to fluctuations in demand, and whether it contains aspects that -- like Beanie Babies -- are highly likely to affect its long-term profitability and stability. This paper examines three important American companies -- Campbell's Soup, Goodyear, and Hewlitt-Packard -- to determine what (given current market conditions) the best ratio of debt financing to equity financing.
Before proceeding to discuss the specific strategies that each company should consider taking given the current set of market conditions, it is important to ...
There are both upsides and downsides for a company to go into debt to get the money that it needs to run its operations. When a bank, individual, or other entity lends to a company, company officials are relatively free to do what they want with the money. While they will be enjoined from doing anything illegal with the money and will generally have made an agreement with the lender about what the money is for (a plant expansion, for example, or a new IT system), a lender does not gain any managerial or operational control over the company.
This is analogous to the ways in a person is affected when she gets a car loan. The lender may require the person to get car insurance so that there is a way to pay back the loan if there is an accident; however, the lender cannot tell the borrower what color car she can buy or what radio stations to listen to. So long as the borrower repays the money on the schedule that s/he has agreed to, then the borrower has a very high degree of freedom in terms of what s/he can do with the money (Peavler, 2011).
The above describes the major advantage of acquiring debt to run a company: Acquiring debt gives a company needed capital without giving the lender control over the company's direction. However, there are also disadvantages of acquiring debt. The primary of these is that as a company becomes increasingly indebted it can become a target for takeover by another company. Also, a company that has a high level of debt will have less flexibility. Also, because a company has to repay its debt it may have to make relatively conservative decisions that it would not…
(This is assuming that the company is "normal" in terms of its financing and is not an exception like a vanity project or a form of nepotism.)The first basic way in which a company can finance itself is through borrowing money, that is, through the process of acquiring debt. This is the same process that individuals use in borrowing money to pay for a mortgage or a new car.
Credit Risk Management Banks are an important part of the economy of any nation. Traditionally, the banks operate as financial intermediaries serving to satisfy the demand of people in need of various forms of financing. Through this, banks enable people to purchase home and businesses to expand. These financial institutions therefore facilitate investment and spending that are responsible for fueling the growth of the economy. In spite of their vital role
Financing Expansion My company has enjoyed a good run of success, and is now considering purchasing a competitor in order to expand further. After twelve years of business, we have expanded, becoming profitable, and are now franchising as well. In order to adopt a nationwide strategy with an eye to going global, we are looking at options for expansion. Taking over a competitor is one of the main options. This paper
Debt financing tends to have a lower cost than equity financing and is often easier to acquire. However, because debt financing represents a fixed obligation in terms of interest and repayment, it increases the risk of the firm. Thus, some amount of equity financing is ideal with respect to keeping the firm's risk level within reason. The level of risk a firm should have will vary depending on a number
Debt vs. equity financing As its name implies, debt financing involves borrowing money from a bank, individual, or company, with a promise to pay back the principle with interest. Any organization can make use of debt financing, spanning from a small single proprietorship to a large multinational. The owner of the business retains control over the organization and the only responsibility he or she has to the lender is to make
Credit Cards Most Americans Should not Use Credit Cards. For some, credit cards are a convenient and safe substitute for cash. It is particularly helpful, for example when making distance purchases, such as ordering something by mail or over the Internet. However, for the majority of Americans, credit cards have become debt traps that are fast resulting in a financial crisis not only for these individuals, but also for the country as
Other than the branch expansion there has been no significant change in their financial structuring. The future does not hold much along these lines as shown in the future projections. Other than conservatively adding lease financing as an option their growth is limited. Past figures from Federal Financial Institutions Examination Council (FFIEC). However with the possible income gain from selling either their branch of a line of loans they may