Motivation To Improve Performance: Financing Needs Estimation (Essay Sample)

Financing Needs Estimation
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Solution:
The assurance and the repayment of debt require a balancing act which demands to take into account the available money in the company or business. Therefore it's very risky for a company to be holding much money since the opportunity cost and the little cash could make a company not able to settle their debts (Mayo, 2015). In an organization or business, a debt of a long period is calculated as follows.
New Long-term debt requires = the extra cash required – Capital stock supply
Extra cash required = ((Sales/ or the Assets in existence)* adjustments in the current Sales in existence) - ((Accounts to be paid/payable)*Adjustments in the current Sales in existence) - The income Profit Margin* The Projected Sales * The Retention Ratio projected)
Recommendations for lowering Forecasted Debt Financing
1 Increasing the Common Stock Agenda:
Ambrose Inc. intends to market the stock of $75000 for sale. Therefore to be able to decrease the additional debt it requires Ambrose to issue more new stock in the market. This new stocks that were issued in the market will provide a chance and more cash to invest in the new market opportunities considerably (Mayo, et al...). It will also assist in decreasing the obligation of additional debt financing in the new stock. This will offer a chance to lower the risk of default and will also provide a better investment option.
2 Increasing the Retention Rate being incurred:
Ambrose Inc. decided to use a better retention ratio of 60%. This means that organization will be providing a net income of 40% as the company's dividends. Therefore at the retention rate of 60% and additional $18750 of the new long-term debt is required. A company that uses a retention ratio of 70% will need $0 long-term debt. An increase in the adverse retention rate will assists companies to preserve more money to invest in their business. Moreover, an increase in retention ratio will result in the decrease of the new long-term debt that is required for financing in the company activities (Moyer, McGuigan, Rao and Kretlow 2011).
3 Reduction of the Company’s Capital Expenditure:
In any business or organization capital expenditures is defined as shifting of expenditure in the future of a business. Therefore capital expenditure is experienced when a company or business uses the money to purchase their fixed assets or adding to the existing fixed asset (Brigham and Houston 2016). The decrease in capital expenditure will result in lowering the costs for Ambrose Inc. and increasing the net income of the organization.
The Profit Margin of a company = Net Sales/Net Income incurred.
An increase in Profit margin will also cause an increase in the net income of a company. Therefore increasing the profit margin will result in lowering the additional funds required and cause a less long-term debt.
4 Increasing the Account Payable:
Accounts payable is the cash allocated by an organization to its providers that appears as a liability on an organization's asset report. A reduced payment of the installment of liabilities will give more money and reduce the long-term debt. The increment in the account payable will build the extra funds requi...