'Categorizing Funding Requirements Essay\r'

'Each requirement should be funded in different ways. In other words, the nature of the reinforcement requirement dictates the preferred type of financial backing. For example, warmheartedness supporting needs as a general manage will be satisfied by rectitude financing and, if available, long-term debt. Short-term rotary backup and chance requirements usually are satisfied by shorter-term bank lines. Analyzing the total funding needs of the stage business into these three categories calls for judgment as to which requirements are midpoint and which are cyclical and of short-term or medium-term duration. thither is no whiz correct answer, and much depends on the nature of the company’s business.\r\nFor example, a billet investment company might categorize funding to pay for completed property victimizations as core out funding for a long-term asset, while a property development company would categorize the be of a development as cyclical short- to medium-term funding for an asset it confidently will expect to give away on completion of the development.\r\n•The long-term funding requirements of a business are the funds needed to pay its core business assets such as land, buildings and equipment. every(prenominal)(prenominal) business has core assets, although it is not always readily apparent what they are. For example, the core assets of airline companies at unmatchable time were their fleets of aircraft. Now, however, many airlines avoid owning aircraft, preferring to lease them, and their of import core assets have become information engine room systems and landing slots at airports. Some hotel groups have ceased owning the hotels they manage, and their core assets are the management contracts for hotels that are owned by third parties.\r\n•Most companies are subject to cyclical or seasonal fluctuations in their m adepty flow, frequently reflecting a seasonal trading pattern. Even companies with no apparent cyclic al influences on cash flow, receiving a relatively constant pullulate of income, might in reality have a short-term cash flow cycle. They might, for example, accumulate cash receipts at a steady rate throughout separately month but make bulk payments (for materials and reward and salaries) only one or two years each month, or just once every quarter (for rent payments). Business cycles, and their associated cash flows, lowlife span several years, for example in the development of agricultural and forestry businesses.\r\n•Contingency funds are to hurt unexpected requirements. A company should have nark to contingency funding for a number of reasons. at that place could be an unexpected downturn in one of its markets or the opportunity to make an acquisition. The level of contingency funding depends on such factors as:\r\n•the unpredictability of the markets in which the company operates •the vulnerability of the earnings stream to market recession •th e dependence on one or just a few major customers for achieving sales targets •Management’s desire for harvest-tide by making acquisitions.\r\n'