Madison PLC Case Study: Sources of Funding, Debt Collection (Essay Sample)

Madison PLC Case Study
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Introduction
Sources of Funding
Sourcing funds could be done for an array of reasons. Traditional sectors of need could be for capital asset attainment, a new depot or building construction, or new machinery. The development of novel items can be hugely costly and thus capital is needed. Usually, such advances could be financed internally, whereas machinery acquisition capital could emanate from external sources. In this era and time of strict liquidity, numerous companies have to find for short time capital in the mode of loans or overdrafts as a way of offering a money flow mitigate. Interest rates could vary from company to company and also permitting to purpose (Brigham, and Ehrhardt, 2013. If you are capitalizing a new company or business or trying to magnify the old company, deciding the best source of funding for your exclusive aspects could be challenging. Since one can choose from various options of sourcing or funding, every financing option has its individual set of drawbacks and advantages. However, no selection is superior to the other in all aspects.
There are various sources of funding a business or company. Such sources could be comprised to two groups which are external and internal sources. Internal sources are the funds raised from within the company or business, while the external sources involves third party. Mainly, internal financing possesses no cost to the company, whereas the external sources where a third party is associated, has more cost to the company. There are about five internal components of finance and they include;
Owner’s investment (additional capital or start up)
Retained profits
Auction of stock
Auction of fixed properties
Debt collection
Owner’s investment
Owner’s investment is the money that emanates from the own or owner’s saving. The money could be in the aspect of start-up capital applied when the company is setting up. The money could also be in the aspect of additional capital, probably for expansion. Owner’s source is regarded as a long-term finance source. There are various advantages linked with owner’s investment and they include the fact that there is no payable interest, and it need not be repaid. The drawback of this financial source is the aspect that it has a limited amount that can be invested by the owner (Ingram, Hechavarria, and Matthews, 2014).
Retained profits
Retained profits is a funding source that is accessible for a company that has been selling for several years. These profits are attained and later brought back to the company. Retained profits is a long-term or medium financial source. The various advantages linked with retained profits include the fact that there is no payable interest, and it need not be repaid. The drawbacks of retained profits includes the aspect that such profits are not accessible to new companies and the company could fail to make more profits to be ploughed back (White, and Moody, 2015).
Auction of stock
Auction of stock denotes the money that arises from selling and trading off unsold stock. That is what is done mainly during January sales. The profits attained are then ploughed back to the company and auction of stock is also a short-term financial source. The various advantages of auction of stocks is that it is a fast mode of raising finance and trading off stock diminishes the costs linked with withholding them. The drawbacks of stock auction is that the company must offer a cheap worth for the stock (Ingram, Hechavarria, and Matthews, 2014).
Auction of fixed properties
Auction of fixed properties is the funds that arise from fixed properties like a piece or part of machinery no longer wanted. Companies do not constantly have excess fixed assets they can trade off. There is also a limited number of fixed properties that a company can trade off. This is a good medium-term financial source. The various advantages of auction of fixed properties is that it is a better mode of raising finance from properties no longer wanted. The drawbacks of this source is that it is a slow way of raising funds and some companies are improbable of having excess assets to trade (White, and Moody, 2015).
Debt collection
Debt collection involves collecting the money that debtors own the company. A company can raise their funds by collecting the cash owned by their debtors. Debt collection is a temporary financial source. The advantages of debt collection are that there lacks additional expenses in obtaining that finance since it is a phase of the company’s ordinary operation. The drawbacks of debt collection are that arises a possibility that debts owned could go bad and never be repaid.
There are about five external financial sources and they include;
Overdraft or Bank Loan
Additional Partners
Share Issue
Leasing
Hire Purchase
Mortgage
Trade Credit
Government Grants
Bank loan
Bank loan is the cash borrowed from a bank at an interest rate that is agreed over some time period. Bank loan is a long-term or medium financial source. The advantages of bank loan include the aspect that its set repayments are widespread over a time period and an aspect better for budgeting. The drawback of bank loan is that it is expensive over the interest payment and may require a security to be given by the company to the bank (Ingram, Hechavarria, and Matthews, 2014).
Leasing
Leasing is a mode that permits the company to access assets with no need to recompense a huge lump amount up front. Leasing is arranged via a finance firm. Leasing involves renting a property. Leasing includes making given repayments. Leasing is viewed as a medium-term financial source. The various advantages associated with leasing is that companies could have the application of up to date machinery immediately, and payments are widespread over a time period, an aspect best for budgeting. The drawbacks of leasing include its expensive nature, and that the property is a belonging of the financing company (White, and Moody, 2015).
Mortgage
A mortgage is a credit secured on assets. A mortgage is repaid in repayments over a time period normally 25 years. The company will possess the assets after the final repayment is done. A mortgage depicts a source of funding that is long-term. The advantages of a mortgage include the aspect the company has the application of the asset, repayments are widespread over a time period and the company will possess the assets after the final repayment is done.
Government grant
Government organizations like Invest NI gives grants to company both new and established. Such grants particularly apply various conditions like where the company has to locate. The advantages of grants include the fact that they do not need to be repaid. The drawbacks of grants include the aspects that various conditions like where the company has to locate applies, and that not all companies are eligible to be granted a grant (Ingram, Hechavarria, and Matthews, 2014).
The company has to look at various aspects when considering sourcing funds for upgrading or improving their operations. The sourcing of funding decided will be contingent on several factors including purpose or what the funds are intended for, time period or how long the funds is needed for, amount or how much cash the company needs, and size and ownership of the company. Madison PLC has to ensure that it look at such factors before settling on the source of finance to expand their company and operations.
Working capital management
It is frequently stated that one can lose money for a certain time period, but runs out of funds once. The consequences of an unproductive working capital organization can be difficult and just as devastating for a company. Companies having efficient cash flow organization drills not only create more funds from their operations, they attain extended flexibility to take gain of opportunities as they develop and are less reliant on external financial. Working capital organization depicts the managerial accounting approach focusing on managing efficient phases of both the modules of working capital, present liabilities and current assets, in detail to the other (Arora, 2013). Having a working capital organization enhances a business to have sufficient funds flow as a way of attaining its operating expenses and short-term debt requirements. Implementing an efficient working capital organization model is a better way for numerous companies to add their earnings. The two key modules of working capital organization are organization of individual aspects regarding working capital and ratio analysis.
A few major performance ratios of a functioning capital organization structures are the inventory turnover, working capital ratio, and the assortment ratio. Ratio scrutiny will lead organization to recognize sectors of focus like cash management, payable management, inventory management, and accounts receivable. Managing functional capital in a mode that enhances the availability of funds within a business is probably more significant than ever, in nimble of the complexity numerous companies are still going through when attaining bank-given credit. Businesses are continuously understanding the value of attaining a healthy funds flow and are capitalizing heavily in procedures that aid them get the hidden funds within their firms. That investment is indicating significant as many treasury organization department still have reduced funds management and functioning capital procedures in place (Jain, Singh, and Yadav, S.S. 2013).
Working capital is an extremely efficient company’s barometer of financial and operational effectiveness and efficiency. If its condition is good, the company is bette...