There are many ways that a big company such as M&S can raise finance so they can meet its objectives. There are two main sources – Internal, which are available to the company straight away but might be limited, and External when the company might have to go to bank or other institutions to help them to raise funds.
Internal is when the company is using different methods within the business to raise more money to meet their objectives:
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Using retain profit- if the company has enough profit from the previous year they can use the money to reinvest in the business.
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Reducing working capital – the company might decide to reduce their stock lever, for example they might order less stock to make sure that they wont be any left over that have to be thrown away.
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As well being a big company for really long time they have to keep up with new equipment or ever buying more land for their farms, however M&S might decide to sell the assets that are not using any longer
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By increasing sales through either putting up the prices or putting down the price with different offers such as 3 for 2.
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Cost cutting – the company might have a look at each store that they have enough people to do the job perfectly, so if they are having too many staff they might have to reduce the number of their employees.
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Instead of buying new equipment such as vehicles or computers they might decide to have them on lease and hire purchase, which means that rather than buying equipment that has to be change in couple years time they might rent it from another company and if there is a problem with the equipment the renting company will exchange the item.
External Sources of Finance is when the company needs help from other organisations to make sure that they will raise enough funds to meet their growth objectives:
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Long term loans – money that bank lends to the company in order to pay it off by the agreed time with the agreed rate of interest. Some times the banks want to make sure that they money will be paid back by asking for guarantee, so the loan will be secured against an asset of the business. Also the loan might be taken from other company.
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Shares – issuing different types of shares is always good way to raise money but the company has to make sure that need to raise big amount of money in order the business to be running. The company might decide to issue only certain type of shares
- Ordinary shares – these are the most common shares that any plc can issue, it comes with the highest financial gain but with the higher risk than the other shares.
- Preference shares – these shares guarantee their shareholders special treatment to the annual dividends, but the shareholders does not benefit from the increasing profit. Preference shares are with a fixed value.
- Cumulative preference - type of shares that gives the right that if the dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preferred shares must be paid, despite the earning levels of the business.
- Redeemable – these are shares the company sells but the agreement to be bought back in certain time.
- M&S might sell more shares to their already existing shareholders with discount so the company will raise funds.
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Factoring debts – this is when the company has customers who are not paying for the purchases for really long time or that are refusing to pay. Then the company might decide to sell these debts to a specialist debt-factoring company against amount of money. In this way the company will raise immediate funds.
For example M&S has many customers who are not paying their purchases or refusing to pay them in really long time – that is a problem for the company because they are loosing stock and not receiving income. M&S might decide to sell that debt to a specialist company for certain amount of money, and that company is taking over the problem customers. In that way M&S receives immediate funds and does not have any customers that are in debt. But if that Specialist debt-factoring company receives back the full amount of money from the customer they are keeping them within the company.
- Investors – M&S might find good investors to help them with the funds in order to meet their objectives, in pay back the company will give them a part of the profit.
Marks and Spencer are already cutting their costs, by reducing amount of money planned for modernisation programme, new stores, supply chain and technology. They are still selling shares on the London Stock Exchange market; there are 20,382,939shares with price of 220
Also what they can do is to use the profit from the previous year is good decision if M&S do not want to make any changes within the company. The company can try to cut down their other expenditure, for example to have a look at each store and if they have too many people they might reduce the number of their staff, also if there are stores that have more expenditure than profit might have to close them down but too keep the ones that are on high street and make profit. M&S can find cheaper suppliers with that offers same quality. Even after trying all the methods to raise funds within the company, before asking a bank for a loan M&S need to think about a government grand. The grand or a bond is much better than a loan because of its interest rate which is lower than the banks as well the government is willing to help big companies especially like M&S while there are trying to keep everything organic and British made.
Whatever external methods from the listed above Marks & Spencer have to be really careful when choosing, like for example if they decide to go a loan they need to make sure that will be paid back.
Another really familiar way that M&S can raise funds is to merge with another company and use their profit as well
The appropriate external ways of raising funds for M&S are :
- Issuing more shares
- Merging with another company
- Government Grand
There are the best ways that the company can raise money because is easy and say way for them. I think that the most appropriate way is to have government grand because it is like a loan but they do not have to pay such high interest rate as the ordinary banks ask for.
Also there are ways of raising fund that are not appropriate for the company such as:
- Overdraft – there will be too much money and not enough time to be paid back therefore the company has to pay high interest for it which is not appropriate. Overdraft is good only if it will be in short terms.
- Short term bank loans- that way of raising funds is not good for Marks and Spencer because of the high interest that usually banks ask to be paid, also the amount of money that M&S needs in order to operate might not be possible to get from a bank.
I believe that it depends of many factors that would be easier or not to raise funds in 2006 rather than 2008. Probably would have been difficult in the US to raise money in 2006 because is the period of credit crunch started there, but easier in same year to raise money in the UK. As well not in 2008 would be really difficult for the company to raise funds because the credit crunch effect in every country in the Europe.
At the moment in the UK it will be really difficult for the company to raise funds especially when they have big drop in their sales. The banks will not give them any loan because they will be trying to save their business. For 13 weeks, since the credit crunch really effected UK, M&S sales has fallen with 6.1% just in the time from 27 September, and I think that it will keep slow falling until people feel safe with their money. Just because of the credit crunch people tend to buy less expensive products/services than before because they are not sure what will happen in future. These 6.1% drop makes is even harder for the company to raise money though issuing shares, taking loan , because makes the company to look insecure , that they might not make it through the credit crunch period. In general the company will be able to raise money with internal methods rather than external.
There are different circumstances that a bit company might need to raise money.
- One of the cases that company will need to raise great fund is when they want to take over of another company. The buying company will need the money to take over the other company to refurbish it and to introduce to the customers new image in order the new company to be successful. Good example is when Morrisons took over Safeway
- If a company decided to expand via opening new stores in better places or even in different countries there will be need of raising funds to do so. This process takes times and mostly HR and Marketing work which both need financial help in order to do their job.
- To increase their investments opportunities through putting more shares on sale in the stock market
- Introducing new image of the company, new products/services, having goal to make the company better knowing brand all these objectives/goals need great funds. Example is McDonalds when they started to introduce new better image of the company with comfortable chairs, introducing new meals and promoting better healthier food .
http://www.londonstockexchange.com/en-gb/pricesnews/prices/system/detailedprices.htm?sym=GB0031274896GBGBXSET13127489MKS
http://www.the-debt-clinic.co.uk/DebtNews/All_You_Need_to_Know_about_the_Credit_Crunch_200710413733