Assignment Contents Introduce In this assignment, i will have opportunities to learn more thing relate to finance, and get more information about the impact of many different source Not only that, i will explain clearly the cost of many different source 1.1 Source of finance in business There is having different source of finance in business: • • • • Payables: Bookkeeping payable, it can be explain by “Payables” the amount of money that the company have to pay for the short-term debt To be able to manage the financial performance of the company, companies often use payable Short-term debt: Is the total value of debts to be paid with payment term not exceeding 12 months or under a production cycle of business as usual in payables to suppliers, internal pay, the other long-term payable, borrowings and finance lease liabilities at the time of reporting Long-term debt: Is the total value of long-term debt of the business including debt having remaining maturity of 12 months or more, or on a production cycle, normal business at the time of the report, such as: Receivables paid to suppliers, internal pay, the other long-term payable, loans and long-term finance lease liabilities at the time of reporting Equity: The value of a property is less than the value of the financial liability that lemongrass Can more easily understand the definition of equity through the following formula: Equity = Assets - Liabilities In the balance, the capital that owners spent to open a company is equity • Retained earning Retained earning allude to the rate of net income not paid out as profits, but rather held by the organization to be reinvested in its center business, or to pay obligation It is recorded under shareholders' value on the monetary record Phạm Mềnh Ốn GM03904 -AS1 Page Retained earning (RE) = Begin RE + Net income – Dividends Dividends are considered as the obligation which firm needs to satisfy by spends the rate of net benefit to pay for shareholders That rate will be relied on upon the approaches of organization and the prerequisites of shareholders 1.2 Implication of different resources: Advantage Short-term debt Long-term debt Disadvantage Source liquidity of 'quick' Help tide over short term shocks Relatively negotiate Free up funds for investment opportunities in the short term Less need for collaterals and pledges Relatively low cost of servicing More stable short term debt Linked to growth of company's operating capacity Less need maintenance monitoring Sources such as leases offer flexibility compared to buying the asset easy to than Equity Phạm Mềnh Ốn GM03904 -AS1 for and Time and resources for monitoring and maintaining short-term credit Not useful for long term capital needs Costly charges interest Need to prepare information for financiers Companies with no track records, cash and asset base will find it more difficult to obtain financing Restrictive and covenants clauses - The funding is - Raising equity finance is committed to your business demanding, costly and time and your intended projects consuming, and may take Page Investors only realize their investment if the business is doing well, egg through stock market flotation or a sale to new investors - You will not have to keep up with costs of servicing bank loans or debt finance, allowing you to use the capital for business activities Outside investors expect the business to deliver value, helping you explore and execute growth ideas - The right business angels and venture capitalists can bring valuable skills, contacts and experience to your business They can also assist with strategy and key decision making - In common with you, investors have a vested interest in the business' success, i.e its growth, profitability and increase in value - Investors are often prepared to provide followup funding as the business grows 2.1 The cost of different sources of finance Opportunity cost: Phạm Mềnh Ốn GM03904 -AS1 Page management focus away from the core business activities - Potential investors will seek comprehensive background information on you and your business They will look carefully at past results and forecasts and will probe the management team Many businesses find this process useful, regardless of whether or not any fundraising is successful - Depending on the investor, you will lose a certain amount of your power to make management decisions - You will have to invest management time to provide regular information for the investor to monitor - At first you will have a smaller share in the business both as a percentage and in absolute monetary terms However, your reduced share may become worth a lot more in absolute monetary terms if the investment leads to your business becoming more successful There can be legal and regulatory issues to comply with when raising finance, egg when promoting investments An opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action Put another way, the benefits you could have received by taking an alternative action Example: you are 18 year old, and you can go to university to study or you can get the job, the time that you spend out, you can earn the money But you don’t, you spend that time for study, you are leave that you can earn money after you graduated and you can get the best job with your diploma An opportunity cost is when you 18 years old and you can the job Tangible costs: A quantifiable cost related to an identifiable source or asset Tangible costs represent expenses arising from such things as purchasing materials, paying employees or renting equipment Tax Shield: A tax shield is a reduction in taxable income for an individual or corporation achieved through claiming allowable deductions such as mortgage interest, medical expenses, and charitable donations These deductions reduce taxpayers' taxable income for a given year or defer income taxes into future years ESOP:is an employee stock ownership plan (ESOP) is a qualified, defined contribution, employee benefit (ERISA) plan designed to invest primarily in the stock of the sponsoring employer ESOPs are "qualified" in the sense that the ESOP's sponsoring company, the selling shareholder and participants receive various tax benefits ESOPs are often used as a corporate finance strategy and are also used to align the interests of a company's employees with those of the company's shareholders Example: We will analysis the fact story - “TheGioiDiDong has hundred billion tax avoidance by employee rewards” Namely, Thegioididong.com was "rewarded" nearly million shares to 886 employees of the company Those shares were issued on the basis of criticized 70 billion from the profit after tax and undistributed On average, each employee received 79,000 shares, respectively 79 million par values However, the current stock market price MWG nearly VND 80,000/share, ie the actual value is entitled to more than 600 million So instead of a cash bonus, TheGioiDiDong reward with shares, it may get benefit? Assuming monthly salary of each employee is 15 million VND (180 million VND/ year), so the tax is 35 million/year But if the reward was 600 million VND + 180 million VND salary The tax will be 125 million VND Therefore, if 600 million VND reward by shares, so the tax just be 0,1% when the owner sold It mean the employee just pay 600.000 VND for tax So with this way, TheGioiDiDong wont violates any provision of the the Law At the same time, TheGioiDiDong nor used to 500 billion in cash to distribute to employees Shareholders can instantly calculate the reduced 5% interest in the company, corresponding to the ratio of Phạm Mềnh Ốn GM03904 -AS1 Page shares to be issued not more to reward employees However, the immediate benefits of this loss will be compensated if the business results continued good growth 2.2 The information needs of different decision maker Financial information: Financial statements are records that outline the financial activities of a business, an individual or any other entity Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers Financial statements for businesses usually include: income statements, sheet, statements and cash flows, as well as other possible statements • Balance sheet: A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders The balance sheet adheres to the following formula: Assets = Liabilities + Shareholders’ Equality Example: organizations are getting high benefit and can twofold the benefit in one year from now Notwithstanding, organizations' held acquiring is lower than profits For this situation, the troughs ought to attempt endeavors to persuade shareholders putting their cash back in firms keeping in mind the end goal to accomplish the twofold benefit objective in one year from now • Income statement: An income statement is a financial statement that measures a company's financial performance over a specific accounting period Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year Cash flow: Cash flow statement demonstrates individual’s salary and costs of firms keeping in mind the end goal to oversee money effectively In this statement, taxes are likewise spoken to On the off chance that the proprietor does not concur with high costs for assessments, they will apply some legitimate systems so as to low this expense For example, rather than utilizing money as a part of their financial plan, they likely acquire cash from banks to put resources into creation process This expands the Phạm Mềnh Ốn GM03904 -AS1 Page interest cost, and afterward diminishes charge expenses Not with standing, money that firm needs to pay for premium is lower than expenses If firms working together in various financial fields, income proclamation will help the chiefs assess them with a specific end goal to settle on contributing choice, in light of contributing costs and income of every field Non-financial information: In contrast with financial information, non-money related one is represented by news, patterns thus on that individuals base on them with a specific end goal to settle on business choices to pick up benefits Non-money related data is found on daily papers, magazines and social average Non-financial information is performing an increasingly important role in accounting It has the potential to add significant value, while simultaneously providing challenges Challenges associated with non-financial information include identifying what it is, why it might be used, where it is appropriate to use, and how assurance activities might be conducted Nonfinancial reporting is sometimes referred to as: meeting note, press release, letter from BOD, management board, vision, and mission 2.3 Evaluating the appropriate sources of finance for business project The necessity of the use of cash related records must be established in the context of the currency held around then In case the organization has no money to run the business, we must have a model to reach a record payable obligations ephemeral and long distance Directors thought carefully before deciding on the kind of obligations they will apply Moreover, the use of additional revenue records should be consider the fact that they can get money back from borrowers as opposed to the conduct of banks should have higher requirements to execute Based on actual indicators, we have rankings of elements in order of cheapest: Retained earning Account payable Short term debt Long term debt Bond Owner equity Phạm Mềnh Ốn GM03904 -AS1 Page Retained earing Allowing access to significant capital source of cash, long-term, not only for organizations is ready to put the resources to work more notable for longer than is required and part-time measures about money, but also with technical profits tax shelters previous investigation Long-term costs are higher than short-term cost Retained earning cheapest because this is the revenue of the company, the owner can use it more comfortable than the other and it would not affect to the business of the company Account payable:: an organization with shut production network can use this success to develop the capital, because of the connection of the organization and the supplier is based on the long-distance participation Organizations only reimbursement for their partner companies while without having to hold the scandalous interest and not to disrupt the production network is good Account payable cheaper than short term debt because it is non – interest bearing and the short term debt has interest bearing, the accounts payable entry is found on a balance sheet under the heading current liabilities Short-term debt: is cheaper than long term debt because the interest bearing is lower than long term debt and the owner can receive the money immediately, relatively easy to negotiate and free up funds for investment opportunities in the short term Long-term debt: usually has fixed interest rates that translate into consistent monthly payments and high predictability it cheaper than bond because the long term debt borrowing the money from the bank and the bond borrowing money from the other companies and the companies cannot take the collateral so there is more risk for company Owner Equity: because of its highest cost when using it as a money speculation, since it was paid to non-deductible profit, the source of this fund likewise comes with a higher risk because it's your money Shareholders Cost highest value Conclusion At the end, financial reports are created with one purpose is to provide and share information about financial to customers In order that they can make some financial decisions Financial information will receive more attention and watched by many large organizations and professional accounting practice, some researchers and was done by several different methods And we have known more definition and know more thing about the sources of finance We could catch all the information of debt, interest rate, capital, equity and explain of any company by follow all this definition above Reference: CafeF (n.d.) học cách tránh thuế trăm tỷ Thế giới Di động Retrieved 02, 2016, from học cách tránh thuế trăm tỷ Thế giới Di động: Phạm Mềnh Ốn GM03904 -AS1 Page http://cafef.vn/doanh-nghiep/thuong-cho-nhan-vien-hay-hoc-cach-tranh-thue-hontram-ty-nay-cua-the-gioi-di-dong-20151215003640371.chn Deadflow (n.d.) Financing for Smes debt Retrieved 06 02, 2016, from Financing for Smes debt: http://www.dealflow.org.sg/cms/services/financing_for_smes_debt_financing.asp Money, B (n.d.) Def of Balancesheet Retrieved 06 02, 2016, from Def of Balancesheet: http://www.investopedia.com/terms/b/balancesheet.asp Money, B (n.d.) Disadvantage and Advantage of Short-term debt Retrieved 06 02, 2016, from Disadvantage and Advantage of Short-term debt: http://budgeting.thenest.com/disadvantage-advantage-shortterm-financing-23376.html Phạm Mềnh Ốn GM03904 -AS1 Page