Module 05 Course Project - Presentation

Company is planning to expand their business operation in China, Japan, and Germany now the challenge here to decide whether they should go in one shot in these countries or one by one. Also there is a challenge as for expansion you need fund and to raise funds company has two options to go for Debt or raise money from public i.e. Equity.

Normally all firms decide among two major option basis their requirement, company growth strategy and their internal policies. However there are some advantages and disadvantages of these options. Here are those

The two main types of financial investments that a company use are

1- Bonds it reduces their bottom line due to interest payments and debt repayments.

2- Stocks it doesn't affect the bottom line directly.

Three types of financing policies are

1- through internal funding

Advantages are there is no external funding required which means no debt repayment burden on the company.

Disadvantages are seriously reduced the company's cash position and their current ratios.

2- Debt offering

Advantages are no dilution of the ownership of the company.

Disadvantages are regular interest payments which reduces the bottom line.

3- Stock offering

Advantages are no regular payments to the stock holders.

Disadvantages are dilution of ownership stake in the company.

In order to expand, it's necessary for Gentry Inc. to tap financial resources. Business owners can utilize a variety of financing resources, initially broken into two categories, debt and equity. "Debt" involves borrowing money to be repaid, plus interest, while "equity" involves raising money by selling interests in the company.

Essentially you will have to decide whether you want to pay back a loan or give shareholders stock in your company. The key question for many businesses is whether to loan the funds or surrender equity in the company. Below are some of the main issues to consider helping you make this decision.

Debt financing is when you borrow money from a lender with the intention of paying them back. The loan is provided at a cost, in the form of interest on the debt, which acts as an incentive to the lender to provide the funds in the first place.

Advantages of debt financing

· The lender will have no say in the way you run your company and does not own any of the assets of or shares in the company.

· You are in control of how the loan money gets spent. There are sometimes restrictions but generally, what you are using the financing for is up to you.

· Once the loan repayments are completed, the business relationship ends.

· You have to pay the lender back the loan amount plus interest; but they will have no direct claim on future profits of the business.

Disadvantages of debt financing

· The debt must be repaid in full with interest within a fixed amount of time.

· The larger a company's debt, the more risky the company is considered by other lenders and investors. This may limit the ability of the company to raise capital by equity financing in the future.

· Cash flow is required for both the repayment of the loan amount and interest payments and must be budgeted for.

Equity Financing in return for capital investment, the investor would receive a percentage of ownership of your company by the transfer of shares.

Advantages of equity financing

· If your business fails, you are not required to pay back investments.

· Investors may have knowledge, experience and connections to help you expand your business, adding more credibility and building stronger relationships.

· You will not have to use income to pay accrued interest and complete loan repayments as with debt financing. This means you have got more cash available to grow your business.

Disadvantages of equity financing

· You may lose a degree of control of your company as the investor will acquire shares in the business and be entitled to a percentage of the profits where dividends are declared.

· Decisions may have to be discussed with and approved by the investors, which again, limits the control you have over your business.

· Finding the right investor can take time. The process for debt financing is generally much quicker.

There are many factors to consider when making this decision and which option suits you best will depend on your company’s credit standing, business plan and financial capital, among others things. Many businesses even use a combination of both types of financing utilising each to its best advantage. Again for expansion If we talk about it is completely depend on company research of market their growth strategy which will derive to go in one go or partly.