Question

Suggest potential strategies as to how the company may raise the level of capital. In your discussion, you should draw on relevant theory relating to the different sources of finance and the issue of capital structure. You will need to rationalise any suggestions or recommendation you make.

Answer 1

The business requires funds round the clock. Running a business requires lots of efforts and great deal of capital. But when we rethink to raise the level of capital the first thing comes in our mind is “MONEY”.

The Potential Strategies comes in our mind to raise the level of capital will be: -

Raise Capital

Debt

Equity

     AND

                                                                                                                                                                                     

The Prudent Finances have the basket of strategies having both as it involves the risk as well the equity. Through them the companies can fuel up the finances and raise their capital.

1. Debt Finance

It includes basically 2 types of finances: -

1. Loan – Even 75 % of business are funded through loans as per the Small business administration (SBR) . Just the small homework in advance will help you to apply for loan easily like need to provide the below documents while applying for the loan.

• Profit and loss statement
• Balance sheet
• Tax returns
• Bank Statements.

2. Bonds – In this instead of going through a Bank we can issue the Bonds which will mature at the certain point of time and investor can purchase those bonds in terms of interest payments.

2. Equity Finance

1. Venture Capital – In this type of funding company needs to be little mature in managing day to day activities. They must be able to earn little returns for the fund.

Best VC Firm is “SEQUOIA” which states that we need to impress the lender in first 5 minutes that why they shall love our business.

2. Angel Investor – They generally operate alone but can pitch with others to form a fund so we just need to prepare a good pitch and action plan for the investment.
3. Initial Public offering – In this we need to issue stock in the primary market after which they are traded in the secondary market.

Different sources of Finance to raise a capital will be: -

1. Applying for Loan
2. Angel investment
3. Venture Capital
4. Public offering
5. Bonds
6. Can Get Working Capital through Credit card 0% interest Policy.

Capital Structure simply explains the stability of the company is having with the blend of Debts and Equities. Whereas, Debt Equity ratio is really important to understand the risk company is having.

D/E Ratio Formula and Calculation

Debt/Equity = Total Liabilities/ Total Shareholder’s Equity

Where,

Asset= Liabilities + Shareholder’s Equity

Where the Debt is lower and Equity is higher that will be the Low-risk company and a better investment Company.

In nutshell, to have the potential strategies to raise capital we must act in time with Debt and Equity and need to keep in mind the below:

1. Need not to wait till end as it’s a common fallacy most business that make.
2. Enough working capital must be there.
3. Need to raise funds with above strategies as and when required.
4. Personal investment is also a pre-requisite.

Hence, company needs to keep a watch on all suggestions stated above.