Question

There are two important questions financial managers should ask:

What level of assets are needed to operate?

How to finance those assets or raise capital? (The firm can use equity or debt financing or combination of both.)

Select a publicly traded company (make sure your selected company is different than your classmates’) based in KSA and look (in terms of percentage) how it finances its operations using equity or debt financing.

In addition, in Saudi Arabia Vision 2030 stated SMEs (Small-Medium Size Enterprises) struggles to access adequate funding from the financial institutions. Offer two recommendations how this struggle is addressed and be in alignment with Saudi Vision 2030.

Answer 1

Investments in the operating assets is essential for the success of most firms. Investment in assets are categorized under three major head, those are property, plant and equipment and also intangible assets for some cases who have purchases intanible assets like patents to support the business growth.

We have chosen Almarai as a publicly traded company based in KSA.

It has invested 25415 in propert, plants and equipments and intangible assets.

Through the use of these assets it is successful in clocking the sales of 14351 for the year 2019.

These sales have been equivalent to 0.56 per 1 SAR invested in assets

It has debt of 11117 including both long term and short term borrowings. Funding raised through equity segment is 15424 including the share capital and retained earnings.

The proportion raised through debt = 41.89% {11117/( 11117 + 15424)}

And the proportion raaised through equity = 58.11% {15424 /( 11117 + 15424)}

B) Role of SME's is taken as that of an important pillar for the developed nations and the developing nations to spur the economic growth and for job creation. The struggle faced by the SMEs for raising funds from the financial intitutions has been taken by the government and various reforms have been launched.

1) incentivized Financial Institutions to fund SMEs

Improving the SMEs fund availability by

• restructuring the Kafalah programme
• Providing SME funding options like Private equity and venture capitals
• Establishing local rating agencies for SME

2) Communicating lending targets to banks by 2020

3) Reimbursement of government fees paid by SMEs for enterprises registered between 2017 - 2021

4)Indirect funding with SR1.6 Billion to provide different funding channels to financial institutions