Managing Financial Resources – Six Sigma Corporation
Essay Preview: Managing Financial Resources – Six Sigma Corporation
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Executive Summary
Six Sigma Corporation (SSC) is an established construction company that operates in Mainland Chines, Hong Kong, Macau and Philippines. SSC has three lined-up projects for immediate action in the start of the year 2011; these are housing subdivision, cell site tower construction and oil depot construction.
The paper will discuss the different fund sources available in the company and the different sources that they may actually use for funding. Implication of each sources will also be discussed and the appropriate sources of finance for a certain business project. The paper wants assess how the student will actually decide in his/her sourcing finances in a company. There are different assumptions made by the researcher in order to fully discuss the proper sourcing and allocation of costs.
The main idea of this paper is to assess how the students will properly allocate and source the fund of the company. All the data herewith are just assumptions of the researcher and are not based to any sources. If some data will appear the same, it is considered as a coincident. All these data are assumptions made by the researcher to meet the criteria and descriptors needed for this unit.
Introduction
Financial management is concerned with the maintenance and creation of economic value or wealth. It is important in all types of businesses, including banks and other financial institutions, as well as industrial and retail firms.
Companies must be able to plan their finances carefully; managers must be able to choose the correct sources and/or finances needed in the business. Managers must understand how investors determine the value of stocks and bonds if they are to identify, evaluate and implement projects that meet or exceed investor expectations.
Financial planning is a continuous process of directing and allocating financial resources to meet strategic goals and objectives. The output from financial planning takes the form of budgets.
This paper aims to develop the decision and sourcing skills of the students. The student must be able to know how to allocate and/or source properly and decide if they want to take decision or not. The student must be able to know decide carefully for the business to grow / expand. As Yogi Bear once said, “Youve got to be careful if you dont know where youre going, because you might not get there.”
Company Background
Six Sigma Corporation (SSC) is predominantly engaged in property, cement and construction. SSC operates in the Chinese Mainland, Hong Kong, Macau and Philippines. Its subsidiaries are engaged in the design and construction of transportation infrastructure, dredging and heavy machinery manufacturing business.
SSC is also engaged in development of knowledge communities like hubs for the propagation of ideas, software development, research and learning. High-tech offices, apartments and villas, educational centres, lifestyle malls, outdoor recreation facilities and parkland will be combined in pioneering eco-friendly environments. SSCs drive to develop further knowledge community projects is built on vision, experience and strategic partnerships.
With SSCs high level of competence in construction, design-and-build, interior fitting-out, renovation, heritage restoration and maintenance of public housing and institutional buildings in Philippines, Hong Kong, Macau and the Chinese Mainland, the construction division has become a cornerstone on which SSCs property development operations will build future prosperity.
Six Sigma Corporation Lined-up Projects
Business needs finance when it is starting up, when the firm has a cash flow problem, when it expands and when it needs to upgrade its equipment and premises. In short, business needs finance to sustain itself.
Sources of finance can be classified into two, internal and external. Internal finance is from within the business and external finance is from outside the business.
Internal finance is considered to be an easy way to solve short-term financial problems for most firms. These sources are (a) retained earnings – profits that owners have reinvested into the business after paying costs and tax (b) owners fund – money put in by the owners themselves and (c) sale of assets – which is one-off way to raise money, generally used during financial struggles.
External finance, which are outside the business, are considered more difficult to arrange than internal sources. It can be short-term, medium-term and long-term finance.
Short-Term
Medium-Term
Long-Term
Short-term finance: is used for daily expenses. It is sourced from an overdraft and is usually repaid in a year.
Medium-term finance: is used to pay for repairs and small improvements. Sources include: loans, hire purchase, trade credit and debt factoring. It is usually paid back over 1-5 years.
Long-term finance: is used to pay for major expenditure, such as buying new premises. Sources include: issuing shares, debentures, mortgages, venture capital and government grants. It is paid back over many years.
Six Sigma Corporation has the following lined up for immediate action. These are (a) housing subdivision (b) cell site tower construction and (c) oil depot construction.
SSC was contracted by Denises Homes to build 25 houses of 150SQM. Based on SSC, they can build 25 houses in 8 months (computations are provided). The housing project needs Php 100, 000, 000.00 initial funding. The estimated cost prior to pre-selling is Php 75M plus marketing cost of Php 25M. Denises Homes will be the one shouldering the Php25M marketing cost.
Drias Cell Site Tower contracted SSC to make 13 Cell Site Towers. Theres an estimated cost of Php 600T with a Purchase Order amount of Php 1.76M. SSC can create 13 cell site towers in 4 months (computations will be provided).
SSC was contracted by Kimys Oil Depot to make an oil depot which will be situated in a nearby province and has an estimated total cost of Php 55M. The cost is 76% of the total contracted amount. SSC can build an oil depot for 2 years (computations will be provided).
Finances Available
Finance Source
Short-term/Medium-term
Long-term
Estimated cash proceed from sale
Retained