Sources of Finance Disney

Question: Discuss about theSources of Financefor Disney. Answer: Introduction Many different sources of finances are available for the business enterprises for the purpose different activities. Finance sources can be selected using the amount of finance required for particular business activity and also time period for which capital is required plays an important role. While looking for the external sources of finance it is important to check the risk associated with sources of finance that has been selected. Leverage amount is also to be considered in every source of finance before selecting any option. In this report, discussion will be made on various sources of finance available to Disney for the purpose of expansion. Sources of Finance for Disney As per sources of generation there are two main sources of finance, Internal and External. Internal sources of finance can be retained profits, owners capital and sale of fixed assets. External sources of finance can be bank loan or overdraft, issue of common or preferred shares, leasing, hire purchase, and trade and issue of bonds or debentures (Mayo, 2011). In order to finance for expansion purpose, Disney must look for external sources of finance as expansion programs requires huge investment and it is not possible to generate that much amount from current business that helps in expansion project. External source of finance is the method used in business to generate the funds from various sources outside the business context. Shareholders Capital It is one of the most frequently used sources of finance and most of stock exchange listed companies make use of them. In this method, company makes an initial public offer for their common shares at fixed price that can either at discounted price or premium price. These shares can be taken by the public and they become shareholders after the allocation have been made to them. In other words all the shareholders that have invested in the common shares issued by the company become the owners of the company. In this source of finance company is not bound to pay the leverage amount but to maintain the creditability company pays the dividend to their shareholders from the profit left after deduction of all expenses. The major disadvantage of generating the funds through issue of common shares is that it takes months to complete the process of issue of shares and public invest only in those companies that high rate of return and maintains low risk. This source of capital is permanent in n ature and only requires to repayment at the time of wide up of company or repayment of issued capital. Disney Company is already listed on the stock exchange and it requires expanding the business, so it is easy for the company to generate the required amount through making the right issue or IPO for fresh shares. Financial Loan from Banks or Financial Institution It is most easy and expensive source of finance as it links directly to the source person. Here source of finance are banks and other financial intuitions that sanction the required funds on the basis of credibility of company and various other aspects (Rigby, 2011). This source of finance is expensive because it requires payment of interest at fixed rate of interest at regular interval. Disney Company needs finance for the expansion of business activities at any other location or any other country, so it requires large amount of finance at lowest interest rate with flexible tenure period. As the creditability of Disney Company was maintained, so it is easy for the company to finance the loans from the banks at low interest rate if possible. Debentures and Bonds Issue of debentures or bonds is another way of finance the capital but requires payment of fixed rate of interest known as coupon rate. In this source of finance funds can be raised through issuing the debentures or bonds in the market. These bonds can also be issued in the favor of financial institution in lieu of equivalent amount of loans (Megginson and Smart, 2008). Bonds can be divided as secured or unsecured. Secured bonds are those bonds that charge on the asset of the company and carries low interest rates where as unsecured bonds are those that issued at high interest rate but they have no charge on assets of company. Disney Company can raised debt capital through issue of bonds of equivalent value that is required for investment in expansion program. Conclusion It can be concluded that there various sources of finance available to the Disney Company and it is the duty of finance manager to chose the best alternative through making the analyzing of the all the available sources of finance. References Mayo, H. B. 2011. Basic Finance: An Introduction to Financial Institutions, Investments, and Management. Mason: Cengage Learning. Megginson, W. L. and Smart, S. B. 2008. Introduction to Corporate Finance. Mason: Cengage Learning. Rigby, G. 2011. Types and Sources of Finance for Start-up and Growing Businesses. Britain: Harriman House.