Question

I am creating a Financial plan for Stanley black and Decker, Determine why funding is needed for the company. Determine the sources of funding. Consider self-funding, borrowing, equity, venture capital, etc. Evaluate the requirements of each funding source you determined appropriate. Analyze the associated risks of each funding source. Decide which sources are the best fit for your company based on the requirements of each. Justify your decision.

Answer 1

ANSWER-

1) REASON FOR REQUIRING FUNDS-

The company needs funding to meet their working capital requirements as well as to keep maintaining their solvency and liquidity state stable

2) SOURCES OF FUNDING WITH REASONS AND RISKS ASSOCIATED WITH IT-

* Equity- Equity is one of the good options as the company doesn't have financial risk associated with it, so at least 60% capital should be sourced through it.

* Self Funding- It can also be one of the good options along with equity. The company can consider it for max 20% along with equity option.

* Borrowing- It should not be on higher side as it consists of financial risk, albeit it provides the tax deductibility feature but lowers the EPS as well, which thereby hampers the goodwill / equity price of the share of a company. The company should consider it upto 10% of it's capital structure.

* Venture Capital- It can be considered upto 10% after implementing the capital budget processing as it is capital in nature and once the amount of company is invested in it, it is very difficult to overcome that, in case of any default. So, the risk is high in this source and this decision has to be taken very cautiously.