Optimizing Financial Resources for Business Growth
External Financing Resources
Loans
Quantum-CT bank loans can be covered by financial institutions. One option is using a checking account beyond its available balance, leading to overdraft fees and high interest payments. Credit accounts or credit policies allow payments up to a certain limit without owning the funds, incurring interest and commission fees.
Commercial Credit
Commercial credit offers automatic funding for businesses purchasing materials and supplies, allowing delayed invoice payments. Companies can also discount customer bills before maturity to receive bank advances, paying interest until the due date.
Factoring
Factoring involves selling customer credit rights to a factor company for immediate liquidity, mitigating risks of unpaid invoices. However, this comes with high costs and interest.
Spontaneous Financing Sources
These sources, like outstanding payments or social security contributions, don’t require prior negotiation.
Securities Markets and Business Financing
Fixed-Income Assets
These assets, such as bonds and promissory notes, generate predictable cash flows.
Equity Assets
These assets, like stocks, offer variable returns dependent on company performance, with higher potential gains and losses.
Primary and Secondary Markets
The primary market involves new securities, while the secondary market trades existing ones. Initial Public Offerings (IPOs) offer company shares for the first time, while subsequent offerings raise additional capital.
Investment Considerations
- Profitability: Potential returns on investment.
- Certainty: Level of risk involved.
- Liquidity: Ease of converting assets to cash.
Takeover bids involve acquiring a company’s shares, sometimes at low prices in hostile takeovers.
Stock Exchange Advantages and Disadvantages
Advantages
- Lower financing costs.
- Access to substantial funding.
- Enhanced public image.
Disadvantages
- Potential loss of shareholder control.
- Increased reporting and auditing requirements.
- Risk of unwanted ownership by external parties.
Funding Source Selection
Choosing the right funding source depends on investment type (long-term or short-term), desired debt level, and financing costs.
Cost of Funding Sources
- Own Funds: No interest cost.
- Long-Term External Funds: Higher cost, including APR and expenses.
- Short-Term External Funds: Spontaneous sources (salaries, debts) or negotiated options.
- Weighted Average Cost of Capital (WACC): Represents the average cost of all funding sources.
Company Cycles
A company’s business cycle starts with investments in current assets (raw materials) and non-current assets (facilities). Sales revenue recovers the investment, completing the cycle.
Long Cycle
This cycle, exceeding one year, involves fundraising, investment in non-current assets, depreciation, equity, external resources, and reinvestment.
Short or Operating Cycle
This cycle, within one year, involves acquiring raw materials, production, marketing, sales, and revenue collection.
Average Maturation Period
This period represents the time taken to recover money invested in production. It includes:
- Average Supply Period: Time to acquire materials.
- Average Manufacturing Period: Time to produce goods.
- Average Sales Period: Time products are in inventory.
- Average Collection Period: Time to receive customer payments.
- Average Payment Period: Time to pay suppliers.
Calculating the Average Maturation Period
This involves calculating rotations at each stage and the duration of each rotation. The average economic maturation period is the time to recover investment in materials (supply + manufacturing + sales + collection). The average financial maturation period considers supplier financing (supply + manufacturing + sales + collection – payment).
Average Maturation Period for Commercial Enterprises
These enterprises focus on sales, with subperiods for supply/storage, billing, and payment.
Relationship Between Average Maturation Period and Working Capital
A longer maturation period requires more working capital, which finances operations during this period.
Determining Working Capital
Methods for valuing the maturation period include the financial rotation method and the syncretic method, ensuring sufficient working capital for sustained activity.