EXPO 2020 – Importance of selecting the Investment source of funds
Expo 2020 is a phenomenal world event that will be hosted by Dubai, UAE, for 173 days aiming to display a diverse range of products and parade new experiences to the world community. It is a golden opportunity for businesses to promote their brand and reach a broad customer base. Indeed, to exhibit your company at an event as massive as Expo 2020, it would essentially call for major long-term investments.
Businesses must assess certain factors before making a new investment. These include the rate of return from EXPO 2020, the appropriateness of promoting their company through EXPO 2020 and the agreement of the EXPO 2020 environment with their business activities. They should most importantly determine if the following investment helps to positively contribute to their overall business objective. If yes, then it is an opportunity to grasp from.
When choosing the sources of investment funds, it is critical to select the appropriate source that would lead to maximum productivity in business performance and the highest returns. Below are listed some of the available options:
The accumulated net income of a company after it has paid off dividends to its shareholders. It is the primary long-term source of finance for a company as it represents what the company has earned to reinvest back into the business.
- In-house, quick and easy finance readily available for usage
- No interest paid or costs incurred to raise the fund. It is cost-effective.
- Does not increase the business debt profile
- Does not involve a share of ownership hence full control of the business is maintained and profits will not have to be shared
- Involves risk as the company has fewer funds left to remain liquid during cash flow shortages
- The business may miss out on favorable opportunities due to shortage of cash
- It may be very time consuming to build up the necessary funds through retained profits
Capital investment by the owner(s) or parent company
The amount of money contributed by the owner to run the business.
- Complete control of the business
- Quick finance and no interest charges
- The investment does not have to be repaid
- The owner may have insufficient funds
- Risk of personal debt or bankruptcy of parent company
Sale of fixed assets
The cash gained from the disposal of fixed assets, which are no longer needed for business operations.
- More effective use of business assets
- Reduction of costs associated with maintaining the asset
- No interest charges
- Time-consuming to sell off assets
- Fixed assets must be sold before their useful life
- The business is unlikely to have excess fixed assets to sell
Bank loans and other bank facilities
Money borrowed from the bank for a set period at an agreed interest rate. CDA could help companies arrange these loans by improving the company’s liquidity position or preparing the financial statements in a format that meets international accounting standards. A company’s liquidity position could be improved by lowering spending or delaying payments while encouraging receivables to pay on time. A better cash flow position encourages banks to lend as the business has sufficient assets to manage their debt commitments.
- A large amount of finance can be claimed for long term
- Payment is spread over a long period hence can be budgeted for
- Banks may require collateral on the loan
- Increases business gearing ratio
- The amount borrowed must be fully repaid
- Expensive due to interest payments
Issue of corporate bonds
Is the issue of debt securities by the company to investors at a fixed interest rate over a set time period. While Issue of Shares or IPO is the process of selling shares of a company to shareholders who can be both individuals or corporates and rewarding them with dividends.
- During losses, no dividends are paid to ordinary shareholders
- Issuing corporate bonds does not share ownership
- Dividends must be paid which reduces profits
- May be costly to issue shares and get listed on the stock exchange
- Only applicable for limited liability companies
- Selling shares results in share of ownership and loss of control
Acquisition or merger with small companies
Is the condition when two companies join operations to create a new organization or when one entity buys and takes over another entity to expand its operations.
- Shared sources of finance
- Higher productivity due to share of ideas, technology and bigger size
- Increase market share and reduces competition
- May be costly to take over another firm
- May face conflict due to varying opinions of managers in decision making and different ways of running the business
The selection of the appropriate source of funds is contingent upon economic situations and business performance. Therefore, certain factors must be considered to ensure that the utilization of the funds brings maximum productivity to the business. If a company wishes to claim a bank loan, it should have a low gearing ratio, and the current interest rates should be low as well for maximum productivity. When using its internal sources of funds, it should consider the future expenses that may arise before using up its available finance in order not to result in cash flow shortages. When issuing IPO, the business should acknowledge the rate of dividends it will be offering hence plan for the sharing of profit. Different firms will find different sources effective for their business; hence a comprehensive evaluation is required to make a decision.
CDA Role in selecting sources of funds
CDA is a well-established Accounting and Auditing firm based in Dubai that offers all kinds of Management Consulting and Accounting Services ensuring to provide high-standard experience and results to its customers.
CDA can assist companies to select and utilize the optimum sources of funds for investment by providing CFO Services which includes assistance in decision making through cost benefit analysis of the available options, cash flow management and other financial services. This relieves the companies from the costs of maintaining a separate accountant to carry out the CFO Services. By outsourcing your accounting activities to our professionals, you will have more resources available to invest in business expansion.
CDA is powered by the best professionals in the field who are highly skilled, qualified, and exceedingly efficient in their job. CDA Team has experience with the Big4 and leading auditing firms in Dubai which guarantees their proficiency and readiness to effectively respond to any client requirement. The team specializes in various areas of accounting and has served a wide portfolio of industries including different MNCs.
CDA Accounting & Bookkeeping Services LLC offers a wide range of services on time according to the convenience of our good clients. These include CFO Services, Auditing Services, Accounting & Bookkeeping Services, Accounting Software services, Due Diligence Services, and Tax Filing & VAT Consultancy services.
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