Strategies for Finding New Equity Capital

Strategies for Finding novelfangled Equity CapitalFinancial ManagementABC plc has grown from a high society with 10,000 turnover to one with a 17m turnover and 1.8m clear in the at last five years. The existing owners have put all their monetary resources into the firm to enable it to grow. The directors wish to take advantage of a genuinely exciting market opportunity but would need to find 20m of new equity capital as the balance sheet is already over-geared (i.e. has spunky debt). The options being discussed, in a rather uni remainsed way, are floatation on the Main Market of the London Stock Exchange, a floatation on the Alternative Investment Market and private equity. Write a report to enlighten the board on the merits and disadvantages of each of these three possibilities. fare selection 1 Floatation on the main market of LSE. float notes from LSE allow lead to listing of shares of the party. Demerits of listing shares on express exchange result lead to increas e in legal compliances, which result also increase the cost of the company. As the company has grown drastically during the past 5 years, it will be easy for acme notes from market which will form part of merits of floating money from LSE. Risks will be shared and a new debt will not out in balance sheet of the Company. On the other hand raising funds by dint of stock market would lead to loss of will power and control over the company.Option 2 cloak-and-dagger EquityPrivate equity is raising money from handful of investors. Merits of raising funds through private equity are large amount of funds seat be raised , the investors also be a part of precaution due to which the business is monitored closely by a third party, coarse returns can be set abouted from private equity investments.Some of the demerits of private equity are loss of management control and dilution of ownership in the Company.Option 3 Alternative Investment Market is getting investment form alternate so urces. (Andrew Killick Head of Corporate Finance (South Region) bread maker Tilly)Merits The regulations for raising money from Alternative Investment Market are lighter hence it saves the unified expense. The paying of merger and acquisition is easier.Demerits There is loss of control as the institutions (investors) own large share in the company. Floatation puts the company in the spotlight and under scrutiny, and this continues throughout a public companys life which reduces the privacy. The company has to report results to a tighter timetable and to International Financial Reporting Standards.Management accountingManagement accounting team also come up with near questions and request you to explain/answer them for upcoming board meetingWhat is the promontory of distinguishing between absorption and marginal costing? Why they report antithetic profit, explain with an example?Answer Example Variable cost of a product x 10 p.u, fixed cost for the period myriad0, bod of units produced 10000, closing stock 1000 units, material cost 15 p.u look on of closing stock under both methods-Marginal costing resolution stock = (Material cost+Variable cost) * Number of Units= (15+10)*1000 = 25000Absorption beClosing stock = totality cost throughout the year/ radical units produced * closing stock= 100000 (fixed cost)+ 100000 (variable cost) + 150000 (material cost)/ 10000*1000=350000/10000*1000=35000The management of XYZ company is concerned about the its inability to obtain enough fully trained stab to enable it to meet its fork over budget projectionServiceABCTotalVariable beMaterials86721 take1181433Expenses54413Allocated fixed cost6151233Total cost30333782 net profit174425Sales receipts473741107The amount of beat back likely to be gettable amounts to 23,000. All of the variable labour is paid at the same hourly rate. You are asked to prepare a statement of plans, ensuring that at least 50 per cent of the budgeted sales revenues are achieved for each service and the balance of labour is used to produce the greater profit.What steps could the business take in an attempt to improve profitability, in the light of the labour shortage? practiseTo improve the profit in the light of labour, company should B is the most profited company as it has the maximum profit per unit labour. The second pick should be given to company A as it provides better profit per unit labour then company C. And company C is the last option with least profit per unit labour.MM plc makes Product E, the example costs of which areSales Revenue40Direct labour (1 hour)(13)Direct materials (1 kg)(12)Fixed overheads(5)Standard profit10The budgeted output for demonstrate was 1,000 units of Product E the actual output was 1,100 units, which was sold for 44,400. There were no inventories at the start or end of March.The actual production costs wereDirect labour (1,075 hours)14,513Direct Materials (1,170 kg)13,455Fixed overheads 5,700How flexible budget will he lp this company to identify the budget variance?ANSWER negotiable Budget Flexible budget calculates expenditure levels for variable costs. Depending upon the actual revenue different variable cost are considered. Flexible budget results in varying budget depending upon the activities performed.In this case the actual revenue of the company has exceeded the budgeted revenue. The factors affecting the actual revenue and budgeted revenue are Sales, Material, Fixed Overhead, Profit, Labour. So the difference between the actual and budgeted revenue can be easily calculated using Flexible budgeting.REFERENCESAndrew Killick Head of Corporate Finance (South Region) Baker Tilly)