Income statement free essay sample

Does the new sales and distribution strategy make sense from an operational standpoint? Consumers have to deal with distributors for contacts, but with BL for other items confusion for consumers BL has more cash and fewer assets in inventory better for BL Gives them financing (steady cash flow on promissory notes and profits) for other goods Allows them to engage in other goods Advantages: Marketing resources immediately freed up to focus on the disposable contact lens market Lower SGA expenses with new distribution plan Less inventory held by BL for conventional lens, more in receivables Possibly lower distribution cost due to shipment consolidation (only shipped to distributor (32 of them) instead of shipping to final customer location) Disadvantages: Damage relationship with distributors by forcing them to buy the product at high volumes Additional expenses of new product (unknown) 1. What is the impact of the December 1993 shipments of conventional lenses on the 1993 financial statements? Is it significant? There was a $22 million inventory sold to distributors which provided BL with positive net sales. Acting as a financial project adviser to Kuang, my responsibility is evaluating the different sources of finance and providing information on the implication of finance as a resource in the business. Indentify the sources of finance available to business All businesses need money to start up and pay bills. Kuang needs more financial sources to support his company’s establishment in Vietnam. Depending on the size and development stage of business, the selection of appropriate sources of finance is important to success. Start up stage In the initial stage, Kuang and Mottram can make use of some kind of financial sources below: Partnership, Co-founder (between Kuang and his friend – Paul Mottram, Executive Vice President of Bite Asia Pacific This is the most feasible solution for Kuang and his friend where they can be together to raise money from each person’s saving. Government loan â€Å"is a sum of money given to an individual or business for a specific project or purpose. A grant usually covers part of the total costs involved. However, as long as the individual or organization keep to any conditions attached to the grant, it will now have to be repaid†. The advantage of this source of finance is firms may not need to be repaid though spending closely checked. However, in Vietnam, it is very difficult and requires company to persuade the government. Issue shares: Kuang and Mottram can raise more money by issuing shares to shareholders (friends, families, etc). Issue shares can raise a large amount of money and it is never repaid, but it is for listed companies and only shareholders are paid dividends. Expansion stage Bank loan is a debt, often with interest for a set period within an agreed repayment schedule. Often, bank offers this loan service is essential because almost businesses don’t have available financial resources they need to create a purchase. Kuang borrows ? 9,000 from the bank and he has to pay ? 375 interest per month. Retain earnings: This financial source is only carried out in the second year, when Kuang’s company has profitability. With the retain earnings, Kuang make decisions but it reduces dividend payments and companies must achieve a sound balance between dividends and retained earnings. Issue bonds: Kuang business can issue bond to borrow money from the investors. It means that the company has to pay the interest rate periodically on the bond at the purchase value until it’s mature. This solution is good for Kuang, because the company only pay the interest for investor without concerning company’s profit. Assess the implications of different financial sources When Kuang applies different sources of finance for different stages, each financial resource will have different impacts. Let’s assess and evaluate them. Partnership with Mottram in Vietnam (two or more to cover Myanmar and Cambodia) This is the good way for both Kuang and Mottram. There is no risk to raise capital because they’ve already known each other and that is their money’s saving. For example, at begin of this year; Kuang had purchased new machinery by using his own money ? 11,000 and a loan of ? 9,000. However, the rate of contribution of each person determines the right of control of that one. There will be no dilution of control in business from the external. According Vietnamese business law, both Mottram and Kuang will be the owner of company, but they must choose one of them to be the manager. If the company gets loss or goes to bankruptcy, Kuang and Mottram must be liable for debts or loss of business. Government loan in Vietnam Each year, the Government of Vietnam issues a packet of loan for investment that offers very low interest with long-term repayment. Kuang and Mottram can take the advantage of this by applying the requirement form to Department of Planning and Investment of Hochiminh city or Hanoi. This loan is low risk but the government will consider where their money goes. However, the process of conducting the procedure is very complicate and contains some â€Å"black† fees in Vietnam. Issuing shares – Being the Public Limited Company At the present, Kuang and Mottram are partnership business. Transfer into Public Limited Company is a big problem for Kuang and Mottram. Firstly, they will be diluted of management or control because of the domination in share of other shareholders. Additionally, the company’s financial statement must be publicized and quoted on stock exchange. Company must follow the rule and also pays dividend for shareholder. However, the company can gain capital largely for business expansion. Bank loan Bank loan is a popular way of raising fund by borrowing in Vietnam. At present, Kuang and Mottram must think carefully because of the economic depression in Vietnam. Those banks tightening the lending policy and increasing the interest per annum. Kuang Company must ensure that the company makes profit and pay interest every month and also principle at the end of payment. Example: Kuang and Mottram can go to VIB Bank to ask for borrowing. From 20th Nov 2012, VIB bank will offer 9. 9% per annum for first three- months borrowing for enterprises in Vietnam. Kuang and Mottram must consider the ability of paying interest and principle to avoid the default risk and bankruptcy. Some loans carry a prepayment penalty, preventing the borrower from paying the note off early without incurring extra cost. * You will pay more if the interest rates rise. | Retained earnings| * Not have to ask for anybody for loans when need money. * No dilution of control. * It is not tax deductible * Reduces dividend payments if the manager uses the retained earnings for investments. | After identify the advantages and disadvantages based on the type of business of Kuang and Mottram at the present, I recommend two ways of raising capital for Kuang and Mottram.   Retained earnings are not applied at Kuang’s company, so I recommend this for the company. To take the advantage of corporation business model, Kuang should continue to retain the equity earnings. The company will not concern about the interest associated with the capital and the amount needs not to be repaid. This solution has a less risk than others and easily to raise funds. Bank loan: Bank loan is popular. Most of company’s asset is dominated by liabilities which could be come from borrowing from bank. Kuang should consider whether the company offer short-term borrowing or long- term borrowing for its investment in nation and international market. A lot of trusted bank in Vietnam that company should consider are: Vietcombank, BIDV bank, SHB bank, ACB bank, HD bank, VIB bank, Sacombank. Shift to PLC or corporation is also a way for Kuang to raise the capital for further expansion. Because of limited liability, ease of transfer of shares and continuity, investors are more attracted to investing in corporations rather than in partnerships of Kuang and Mottram. This attraction allows corporations to raise the capital needed to manage and expand their operations. * Raising funds by issuing share * The shareholders will suffer both loss and profit of company Assess and compare the costs of different sources of finance There are many sources of finance that Kuang and his friend, Mottram can choose; however, each source has the advantages and disadvantages that the company must analyze carefully to choose the most suitable. Sources of Finance| Cheap| Normal| Expensive| Government Loan| * Some certain administrative fees * Support by the government by tax deductible * Big amount with no interest| | | Issue share| | | * Company spend a lot of fee for administrative * The cost should allocated appropriately between equity and the profit and loss account| Bank Loan| | * Bank loans often are available, easy procedures. * Competition among banks to reduce administration costs and time. Companies can get more profit if business is maintained. | | Issue Bonds| | * Pay a huge fix interest for bondholder. However, it is tax deductible on interest, which reduces the cost of debt capital * Office fee, and administrative fee for issue bond| | Retained earnings| | Opportunities costs will be lost if we use retained earnings to pay dividends instead of investment| | Explain the importance of finance planning Financial planning is an essential process which decides the success or failure of business. It is a tool helps the company determine the current financial situation; adjust the spending pattern in order to meet the corporate goals. When started business, should be done on the basis of calculated risks in business. A good business plan will have no meaning if it does not come with a good financial plan. A good financial plan will help Kuang see clearly the opportunities and risks when the investment, this directly affects the survival of the company. A financial plan is a plan to mobilize adequate, timely and effective capital in line with business processes. A financial plan should be controlled cash inflow and cash outflow. If Kuang does not financial planning will not initiative financial sources.