Question

Adidas Inc is a start up company and is gradually growing big and doing well.It needs additional capital.Imagine yourself as the CEO of Adidas and answer the following questions:

1. How do you plan to raise 10 Billion dollar for this company.

2. Draw up the liability section of this imaginary Balance Sheet .(please format in vertical format)

Answer 1

The Sources of funding for a start ups are as follows:

(a) Owned funds, and

(b) Borrowed funds.

Owned funds are the funds provided by the owners.

In Proprietorship: The proprietor provides the owned fund from his personal property.

In a partnership firm, the funds contributed by partners as capital are called owned funds.

In a company, funds raised through the issue of shares and reinvestment or earnings are the owned funds.

Borrowed funds refer to the borrowings of a business firm.

In a company, borrowed funds consist of the following :

a. finance raised from debentures

b. public deposits,

c. financial institutions

d. commercial banks.

long-term finance (Non- Current Liabilities): Duration of finance is more than 12 months. Eg- Equity shares, preference shares, ploughing back of profits and debentures

Short-term Finance (Current - Liabilities) - Duration is less than 12 months . Eg. Public deposits, commercial banks and financial institutions.

Advantages ofEquity or ordinary shares:

1. Permanent Capital - There is no obligation to return money except at the winding up of company
2. No Obligation as to Dividend: Equity shares do not impose an obligation to pay a fixed dividend. Dividends are payable only if the company has adequate profits.
3. No Charge on Assets: The company is not required to mortgage or pledge its assets. The assets remain free of charge for borrowing money in future.
4. Source of Prestige: A company with substantial equity capital has a high credit- standing. Creditors readily lend money to it because they regard equity capital as a safety shield.

Adidas Inc is a start up company and is gradually growing big and doing well. Being the CEO of the company, to raise 10 Billion dollar for this company, the best option available is raising funds through Equity Shares as it will not create any burden of interest for company.

Company may go to loans by maintaining current ratio and debt equity ratio. As the other financial information is not available , could not suggest for loan financing

Liability side of the balance sheet as follows:

Balance Sheet as on 31 DEC XXXX of Adidas INC

Owner's Equity XXXX

Equity Shares XX

Pref SHares xxx

Non-Current Liabilities XXXX

Debentures. XXXX

Bank Loan. XXXX

Current Liabilities XXXX

Creditors  XXXX

Overdraft XXXX

Total Liabilities. XXXXX