Question

Topic: Financing and Credit

In the beginning of a business, and over time, you may need to borrow money for a short time (revolving credit or short-term loans), or a long time (a mortgage or an equipment loan, for example).

• Given your profit and loss projection from last week, do you anticipate needing to borrow money for any reason? Keep in mind the seasonality of your company. You might make a lot of money in the winter and have essentially no business in the summer — think of how that is true for a ski resort, for example.
• If you foresee having to use someone else’s money, how do you anticipate getting that? Discuss using both debt and equity financing. Also think about how you can use other people’s money (such as suppliers). Be sure to address any bootstrapping measures you might take.
• Even if you plan to keep your business small, imagine what you would need to do if you wanted to grow. This exercise requires you to use your imagination. The only wrong answer for these discussion purposes will be if you state you do not need money now and never will. Even if that is true, imagine what you would do if you did need it.

last week projection:

The business benefits depend upon the circumstances and the product selling price. There would be not other source of business. There would be the chance of bad debit within the business. There is also a huge marketing,advertisement and other expenses. The employee benefit expenses are also going to effect the profit mainly.

The financial ratio help in analyzing financially of the company. There would be a turnover of performance of the company. There would be a financial risk, which would have profitability of the company. But there would be a growth as well in the company. The ratios that would be the greatest to the stakeholder of the profitability ratio, risk coverage ratio and market value ratio.

Answer 1

.Ratios like profitability ratio woukd help the firm identify the profit the firm generates at various stages .Eg: Gross profit Ratio would show the profit generated before Fixed Expenses are deducted and net Profit takes into consideration deductions like Tax and interest.Given the fact that the company already has huge amounts of fixed expenses to deal with equity financing maybe the way to go as it would help the firm maintain a healthy Debt Equity ratio and Financial Leverage ratio.Diversifying the business to make sure the firm can survive in the off season like how a ski resort can upgrade its facilities using equity financing to transform themslves into a 5 Star hotel during the off season and then when the season arrives the firm can then try to leverage that to charge a better rate from customers tating better facilities than other ski resorts is one way.Debt Fianancing may further burden the firm during the off season ,so equity financing is the safer bet.