Funding resources of Time Warner Essay
A current investment requires that the company should have financial stability especially in the short term. This can be measured using the structure of its current assets against the current liabilities. In the year 2006, the ratio of current assets to current liabilities was 10851000:12780000 or simply 1:1. 2. This was a decline from the 2005 current ratio of 13463000:12608000 or 1. 1:1 From the structure of its current assets and current liabilities, Time Warner cannot be able to meet its short term financial obligations as and when they fall due for payment with ease.
Ordinarily, the current assets ought to be twice the current liabilities for a firm to be financially stable. But for Time Warner, the current assets are almost equal the current liabilities. They need to invest in a project that would not require a lot of funds. They can invest in e-services. This is the use of the internet to disseminate information. The firm can use either bank overdraft facilities from a financial institution or issue ordinary shares. The advantage with bank overdraft facilities is that they do not attract much interest expenses.
But because they maturity period is usually short, the company might find itself trapped in
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NON- CURRENT INVESTMENT Non current investments in their nature are costly and require high initial cash outlays. The company’s gearing level would be of essence to consider because this would affect its borrowings. Lenders of money analyze hoe geared the firm is so that if it is highly geared, repayment by the company may not be guaranteed. Gearing is determined by the capital structure of the firm. In 2006, the fixed charge capital of Time Warner was 34997000 and the total capital was 131669000. The firm was 26. 5 % geared i.
e. (34997000/ 131669000) x 100%. The firm is lowly geared. It can embark on an expansion programme like opening a new branch to enhance its media business. Sources of finances can be debt e. g. debentures and the issue of preference shares. It can also use its retained earnings for such an investment plan. Both debentures and preference shares may result into financial riskness. Financial riskness is brought about when the company uses more of borrowed capital on its capital strucute. It can lead to insolvency of Time Warner.
The most appropriate source of financing would be its retained earnings. This is an interest-free source of financing making it cheap compared to the fixed charge capital. It can be efficiently enhanced through declaration of lower dividend rates leaving sufficient earnings to fiance the expansion progrmme. FINANCE 1. John Fred Weston, Eugene F Brigham, Essentials of Managerial Finance, Dryden Press, 2002 2. Paul Einzig, World Finance, Ayer Publishing, 1999 3. David Blake, A characteristic Approach, Routledge, 2003