Costs & Benefits of each Source of Capital

Term Paper , 2013 , 35 Pages , Grade: C

Business economics - Business Management, Corporate Governance

There are many cases that have been observed where the shareholders’ capital was not adequate enough to support the company’s working capital requirement which matter a lot to the companies’ growth and survival. Majority of time it has been observed and analysed that the companies considering to meet its working capital through the external sources are aware of every aspect of the different financial sources. It is important for the companies to take certain parameter (interest rate, term of usage, impact on company’s financial leverage, conditions of lending agreement, time to get the lending approval and the impact of proposed source on the company’s financial ratios) into consideration while making the financing decisions. The theory of Capital Structure is extensively be used to get insight that how much risky is the company’s approach in using external sources (prominently debt). The Trade-off theory intended that companies must have to balance the costs and the benefits of debts flow within the enterprises. Different sources of capital can be classified in various manners but for the convenience, the all of these sources are classified in to following categories (Security Financing, Internal Financing, Loan Financing, Lease Financing and Other sources). Shanghai General Motors Corporation (SGMC) is regarded as the largest international joint venture undertook in China. This venture was made for the accomplishment of long-term goals established by the both firms’ executive. The capital contributed by General Motors (GM)-China of $350 Million to the SGMC. $350 Million equivalent was contributed by SAIC to the SGMC. For meeting the working capital needs, SGMC required $821 Million Of which about the equivalent of $460 Million contributed through Chinese Banks and the Equivalent of of $361 Million was contributed through the International Banks. It has been understood that Different sources of capital have their positive and weak aspects to the associated companies. Therefore the company should use more than source of capital which thus would be resulted in forming company’s efficient portfolio of financing. In this manner by capitalising on different sources of capital, the company would be able to leverage its risk level. And if the associated company is risk averse then it should go for Security Financing or Loan Financing.

Inhaltsverzeichnis (Table of Contents)

• CHAPTER-1: AIMS & OBJECTIVES
  • 1.1. BACKGROUND CONTEXT
  • 1.2. PROBLEM STATEMENT.
  • 1.3. AIMS & OBJECTIVES
  • 1.4. SUMMARY
• CHAPTER-2: LITERATURE REVIEW
  • 2.1. CAPITAL STRUCTURE.
  • 2.2. AGENCY THEORY.
  • 2.3. TRADE-OFF THEORY
  • 2.4. SOURCES OF CAPITAL
    • 2.4.1. SECURITY FINANCING..
      • 2.4.1.1. ORDINARY SHARES......
      • 2.4.1.2. PREFERENCE SHARES
    • 2.4.2. INTERNAL FINANCING
      • 2.4.2.1. RETAINED PROFIT
    • 2.4.3. LOAN FINANCING.
      • 2.4.3.1. BANK LOANS.
      • 2.4.3.2. DEBENTURES.
    • 2.4.4. LEASE FINANCING
      • 2.4.4.1. OPERATING LEASE.
      • 2.4.4.2. FINANCE LEASE
    • 2.4.5. OTHER SOURCE OF CAPITAL
      • 2.4.5.1. TRADE CREDIT
      • 2.4.5.2. VENTURE CAPITAL
      • 2.4.5.3. OVERDRAFT
  • 2.5. SUMMARY
• CHAPTER-3: CASE STUDY
  • 1.1. SOURCES OF CAPITAL: A CASE STUDY OF SHANGHAI GENERAL MOTORS CORPORATION (NAM, 2010)..
    • 1.1.1. CAPITAL SOURCES CAPITALISED FOR SHANGHAI GENERAL MOTORS CORPORATION (SGMC) 22
      • 1.1.1.1. GENERAL MOTORS
      • 1.1.1.2. SHANGHAI AUTOMOTIVE INDUSTRIAL CORPORATION (SAIC).
      • 1.1.1.3. WORKING CAPITAL NEEDS
      • 1.1.1.4. FINDINGS
    • 1.2. SUMMARY.
• CHAPTER-4: DISCUSSION & CONCLUSION
  • 4.1. DISCUSSION
  • 4.2. CONCLUSION.
  • 4.3. RECOMMENDATION.
• CHAPTER-5: REFERENCES.......

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This report aims to provide a comprehensive analysis of the costs and benefits associated with various sources of capital for businesses. The report examines the different types of capital available, including security financing, internal financing, loan financing, lease financing, and other sources. It also explores the theoretical frameworks of capital structure, agency theory, and trade-off theory to understand the factors influencing a company's financing decisions.

• The importance of capital structure and its impact on a company's financial health.
• The costs and benefits of different sources of capital, including equity, debt, and internal financing.
• The role of agency theory and trade-off theory in understanding the relationship between financing decisions and company performance.
• The application of these concepts in a real-world case study of Shanghai General Motors Corporation (SGMC).
• The implications of financing decisions for a company's growth, profitability, and risk profile.

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter 1 introduces the background context and problem statement, highlighting the importance of financing decisions for companies' growth and survival. It outlines the aims and objectives of the report, focusing on analyzing the costs and benefits of different sources of capital.

Chapter 2 delves into the literature review, exploring key theories related to capital structure, agency theory, and trade-off theory. It provides a detailed overview of various sources of capital, including security financing, internal financing, loan financing, lease financing, and other sources, outlining their respective characteristics, costs, and benefits.

Chapter 3 presents a case study of Shanghai General Motors Corporation (SGMC), examining the capital sources utilized by the company. It analyzes the factors influencing SGMC's financing decisions and the implications of these decisions for the company's performance.

Chapter 4 discusses the findings of the report, drawing conclusions based on the literature review and case study analysis. It provides recommendations for companies seeking to optimize their financing strategies.

Schlüsselwörter (Keywords)

The keywords and focus themes of the text include capital structure, sources of capital, financing decisions, costs and benefits, equity, debt, internal financing, agency theory, trade-off theory, Shanghai General Motors Corporation (SGMC), case study, and financial performance.

• College: University of Bedfordshire
• Course: MSc Finance & Business Management
• Grade: C
• Author: Junaid Javaid (Author)
• Publication Year: 2013
• Pages: 35
• Catalog Number: V281115
• ISBN (eBook): 9783656748977
• ISBN (Book): 9783656748960
• Language: English
• Tags: costs, benefits, source, capital