Essays on Johnsons PL Manufacturing Company Case Study

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The paper 'Johnsons PL Manufacturing Company' is a wonderful example of a financial and accounting case study. Johnsons P/L manufacturer is a medium-sized company with a high potential market oversees. The company manufactures quality furniture that has increased the demand for their products overseas.   The company experiences financial problems in meeting the expected gradual demand for their products and the expansion of its market environment. Johnsons P/L Company should vest in financiers to meet their financial obligation. The below sources can be used by the company to raise $60million required for the expansion and increasing demand for their products.

Venture Capital This is a private equity capital that endows financially supportive of high potential growth businesses. Capital venture offers finances to very risky for ordinary investments that cannot be financed by conventional banks or the capital markets (Sheffrin, 2011). The main principle of this venture capital is accelerating the growth of established firms to Initial Public Offering (IPO) requirements. Johnsons P/L manufacturing company shall consider venture capital to finance the market expansion and meet its operation growth since the venture also after financing services. The advantage of this type of financing is that it provides the company with advice regarding the achievement of the company’ s objectives.

It also strategically introduces the business to the association of related partners and businesses for possible structural needs (Strumeyer, 2011). Venture financing leads the company activities towards the preparation of the Initial Public Offering (IPO). This source of finance is generally facilitating the company activities hence lowering the business risk exposures. Although this source of finances is shown potential gains, it can also mislead the company’ s goals and objectives as it can redress the company’ s favorable opportunities and strategies for success.

Commercial Financing This includes loans from financial institutions issued on with guaranteed securities. The company is required to issue securities such as assets to be allowed to borrow loans from financial institutions. Commercial financing is majorly offered to continuing business operations since the business assets will be used as security. In case of failure or defaults to comply with lending rules the securities will be sold to the amount borrowed. This type of financing is considered appropriate to the low-risk ventures in operation that show a trend of high profits thus it is not prescribed to a startup business.

The main benefit of borrowing finances from commercial financing is that lenders have no right to ownership (Previts, 2009). However, the borrower company is obliged with repayment of the loan and the interest where any default will lead to consequential agreements between the lender and the borrower. Also, the interest on borrowing is tax-deductible expenses. This financing source has now any financial advice that reduces the risk to investment thus failure will lead to auctioning of the security assets.

Capital Markets Funding Government and independent companies can be a source of funding through the issue of debt finance such as bonds and equities such as stocks (V. K. GOYAL, 2012). Debt funding involves a model of issuing bonds such that the company takes the liability without surrendering the shares for ownership. Bonds give the borrower an obligation of paying back the principal amount and the interest according to the schedule in the agreement. The advantage of this financing concept is that there is no transfer of ownership to the borrower.

The liability of settling the interest and amount borrowed remains until the full amount is settled (Howard, 2007). The disadvantage of bonds is that the government should approve the financing request thus this becomes inaccessible to many companies as many requirements should be gathered. Equity financing involves auctioning off the company’ s stock so as to share the ownership with the buyer company. This type of financing is more suitable for the expansion of current activities since the stocks are traded publicly and finances are used to venture the company’ s activities (Earl K., 2009).

Equity financing is more disadvantageous as compared to the bonds since the ownership is transferred and the owners have the right of voting and making the firm’ s decision thus lowering the decision-making process. Other sources of financing are the use of bootstrapping which involves a mechanism that results in internal funding. Bootstrap includes: Factoring- this is a financing method that involves the sale of the accounts receivable to the buyers at a discount. Buyers will take the responsibility of collecting cash from the debtors.

Factoring reduces the internal costs that receivables could have withheld and thus making the company more liquid to meet its financial obligations. Trade Credit – this is a funding mechanism that involves increasing the creditor collection period to allow the company to utilize the amount that he could have to utilize in settling creditors to meet its financial obligations (Curtis L. Norton, 2006). For example, if the creditor’ s collection period was 30 days the business and the supplier can negotiate to pay the supplies in 90days.

The amount withheld will be used in funding the company.

References

Cecilia, D., 2007. Corporate Accounting in Austalia. UNSW Press. p.639.

Curtis L. Norton, M.A.D.D.P.P., 2006. Intermediate Accounting:Financial Reporting and Analysis. Cengage Learning. p.696.

Earl K., J.D., 2009. Accounting: Concepts & Application. Cengage Learning. p.402.

Howard, M., 2007. Accounting and Business Valuation Methods: how to interpret IFRS accounts. Elsevier.

Previts, G., 2009. Research in Accounting Regulation. Elsevier. p.286.

Sheffrin, S.M., 2011. Financial Accounting: Accounting for Investment Securities. Wisley & Sons. p.147.

Strumeyer, G., 2011. Investing in Fixed Income Securities: Understanding the Bond Market. Wiley & Sons. pp.50 - 143.

V. K. GOYAL, R.G., 2012. CORPORATE ACCOUNTING. PHI Learning Pvt. Ltd.

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