Categorizing Funding Requirements Essay

Each indispensableness should be funded in different ways. In other words, the nature of the funding requirement dictates the preferred type of funding. For example, total funding require as a general rule impart be satisfied by legality funding and, if available, long-term debt. Short-term cyclical funding and contingency requirements usually ar satisfied by shorter-term bank lines. Analyzing the total funding needs of the billet into these three categories calls for judgment as to which requirements are core and which are cyclical and of short-term or medium-term duration. There is no one reconcile answer, and much depends on the nature of the companys business.For example, a stead investment company might categorize funding to pay for accurate property developings as core funding for a long-term asset, plot of land a property development company would categorize the costs of a development as cyclical short- to medium-term funding for an asset it confidently will expec t to sell on completion of the development.The long-term funding requirements of a business are the funds needed to finance its core business assets much(prenominal) as land, buildings and equipment. Every business has core assets, although it is not unendingly readily seeming what they are. For example, the core assets of airline companies at one cartridge clip were their fleets of aircraft. Now, however, many airlines avoid owning aircraft, preferring to lease them, and their main core assets have render information technology 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. more or less companies are subject to cyclical or seasonal fluctuations in their silver flow, often reflecting a seasonal trading pattern. Even companies with no apparent cyclical influences on interchange flow, receiving a relatively constant burgeon forth o f income, might in reality have a short-term cash flow cycle. They might, for example, accumulate cash receipts at a stabilise rate throughout to each one month but make lot payments (for materials and wages and salaries) only one or two days each month, or scantily once every quarter (for rent payments). line of reasoning cycles, and their associated cash flows, can span several years, for example in the development of agricultural and forestry businesses.Contingency funds are to meet unexpected requirements. A company should have access to contingency funding for a outcome of reasons. There 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 asthe volatility of the markets in which the company operates the vulnerability of the earnings menstruum to market recession the dependence on one or just a few major customers for achieving sales targets Managements confide for growt h by making acquisitions.