A Financial Audit on Walton Hi – Tech Industries Limited

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Table of Contents

Introduction of Walton

Sources of Finance

Internal Sources of Finance

External Sources of Finance

Financial Sources of Walton

Internal Sources of Walton

External Sources of Walton

References

Introduction of Walton

Walton Hi – Tech Industries Limited started operating in Bangladesh from 1977. Today it is considered as one of the top manufacturing plant in Asia. It is the manufacturer of multi-staged electronics. Refrigerator, air conditioner, freezer, motorcycle, television, mobile phones, washing machine, microwave oven and several other electrical home appliances are their main product.

Walton Hi – Tech Industries Limited and their sister concerns have 12,000 employees and around 600 skilled engineers from abroad working for them. They also have a strong Research and Development division that comes up with new and innovative products. Walton also has their own Mould and Die making section and machineries from abroad. Walton maintains a strong Quality Control policy and has a Quality Control Division.

Walton has several showrooms and outlets located all over the country. Walton has managed to capture a significant market share over the years because of their innovative and affordable products.

Sources of Finance

Sources of finance mean different ways a business can attain money. The financial need of any business depends on the size and type of the business. Businesses can access financial resources from two main sources:

  • Internal Sources - From within the business
  • External Sources – From outside the business

Internal Sources of Finance

Owner’s Savings

This money comes from the owners own savings. This can be in the form of start-up capital which is used when the business is starting up. It can also be in the form of additional capital which can be used for the expansion of the company.

Advantages:

  • No interest is required
  • Does not have to be repaid to any one or any bank
  • Owner will get all the profit made

Disadvantages:

  • Risk of unlimited liability
  • There is a limited amount that an owner can invest

Capital from profits

A running business can use the profit made back in the business. This way more profit can be made in the future. The amount of profit that will be invested back in the business will depend on how much profit the owners want to keep for themselves.

Advantages:

  • No interest is required
  • Profit will increase
  • Does not have to be repaid to a bank or a person
  • Money is available for growth of the company

Disadvantages:

  • Businesses might not make enough profit to put back in the business
  • More taxes to pay

Sale of fixed asset

Many businesses have fixed assets that are of no use to them. Money can be made by selling off those fixed assets

Advantages:

  • No extra cost is needed since the item to be sold is already there
  • Businesses liquidity will rise

Disadvantages:

  • Slow method to raise money
  • Many businesses do not have surplus assets

Working capital

This is the money that is used to pay for the daily activities of a business. Daily activities include paying bills, rents, salaries, stationeries etc. This is the temporary source of finance that a business keeps.

Working Capital is defined as:

Working capital = current assets - current liabilities

Advantages:

  • Sale of fixed asset
  • In flow of money
  • No debt or loan has to be taken

Disadvantages:

  • Less assets

External Sources of Finance

Bank Loan

Banks offer different types of loan, commercial mortgages and business accounts based on a particular business. Interest has to be paid to the bank by the business. To get these loans the business will also have to show the bank some kind of security.

Advantages:

  • It is a good method for both short term and long term finance
  • As the interest rate for repayment is given the business can plan ahead
  • Large businesses can get lower interest rates

Disadvantages:

  • Small companies will be required to pay higher interest rates
  • It can become expensive because of the interest rates
  • Banks require security on the loan

Hire Purchase

This method allows a business to use resources and obtain assets without paying a big sum of money. Regular payments have to be made in order to do such thing. After all the payments have been made the asset belongs to the business.

Advantages:

  • After all the payments the business will have another asset
  • Payments have to be made over a time which helps the business to use expensive items
  • Business can use up to date equipment

Disadvantages:

  • This can be an expensive method
  • Cannot have full ownership of asset unless all payments are cleared
  • Businesses end up having to pay more because interest is added
  • Businesses sometimes end up buying things they do not need

Leasing

This method allows businesses to use resources and assets by paying to use them whenever they need it. The businesses do not end up owning the goods at the end of any lease. Leasing is seen as renting an asset.

Advantages:

  • Payments have to be made over a time so large sum of money is not needed
  • Businesses can use the equipment they need without having to buy it

Disadvantages:

  • Can turn out to be expensive
  • The asset belongs to the finance company even after all the payments are made

Share Issues

Issuing shares is offering an ownership of the business. Most small companies issues shares when they become limited (ltd) from sole trader or partnership. These shares are not offered to be sold publicly but it is available close friends and family. When limited companies become public limited company (PLC) they can sell shares on the stock exchange. These shares can be sold many times at different price depending on the demand.

Advantages:

  • Allows a company to raise capital easily
  • Selling shares prevent a company from taking debts or loans
  • No interest is needed

Disadvantages:

  • Division of profits among new owners
  • Shareholders become part of the company so the original owners lose some of their rights and control

Building Societies

Building societies offer loans, business accounts, mortgages and overdraft facilities with interest. Unlike taking a loan from a bank businesses will not have to show some security to get the loan.

Advantages:

  • It is a good method for both short term and long term finance
  • As the interest rate for repayment is given the business can plan ahead
  • No need of showing security

Disadvantages:

  • Have to pay interest
  • Small businesses end up being in a lot of debt

Venture Capitalist

These people invest in risky ventures to get a share of the ownership. They have experience building companies and know their job very well. They provide capital for the business to expand and grow.

Advantages:

  • Brings expertise and wealth in a company
  • The business does not have to repay the money

Disadvantages:

  • The process can become lengthy and complicated
  • Loss of control
  • Have to share profit with the new ventures

Factoring

Factoring is when another firm buys businesses’ debts. This way the business gets immediate money and the debt factoring company collects the debts and gets a cut for their service.

Advantages:

  • Instant cash which means there is money for growth of the business
  • Does not require collateral

Disadvantages:

  • Loss of control
  • Customers pay to the factoring company and not the business

Friends or family

Money can be borrowed from friends or family. This can be paid back in exchange of limited shares or in cash. This money can be obtained at a lower interest rate.

Advantages:

  • Lower interest rates
  • More flexible repayment terms

Disadvantages:

  • People mistake this as informal transactions
  • Personal arguments can come in the way

Government grants

This is a debt free financing offered by the government to new or established businesses. This gives businesses instant stability to expand their business.

Advantages:

  • Does not have to be repaid to the government
  • Businesses will get many social benefits

Disadvantages:

  • These grants come with strict restrictions, as to where the company can use the money
  • Many conditions apply in order to get these grants
  • Not all businesses are eligible

Financial Sources of Walton

Walton Hi- Tech Industries Limited use both internal and external sources of finance. They are explained below.

Internal Sources of Walton

Capital from profits

Walton uses the profit made back in the business. This way more profit can be made in the future. The amount of profit that will be invested back in the business will depend on how much profit the owners of Walton want to keep for themselves.

Advantages:

  • No interest is required
  • Walton’s profit will increase
  • Walton does not have to repay to a bank or a person
  • Money is available for the growth of Walton

Disadvantages:

  • Walton might not make enough profit to put back in the business
  • Walton will have to pay more taxes

Sale of fixed asset

Walton is a big industry with extra assets that sometimes take up space rather than coming to use. These fixed assets are of no use to them. Walton is able to make extra money by selling off those fixed assets to businesses that need them.

Advantages:

  • No extra cost is needed by Walton since the item to be sold is already there
  • Walton’s liquidity will rise

Disadvantages:

  • Slow method to raise money
  • Sometimes Walton does not have surplus assets to sell

Working capital

This is the money that is used to pay for the daily activities of Walton. Daily activities include paying bills, rents, salaries, stationeries etc. This is the temporary source of finance that Walton keeps.

Working Capital is defined as:

Working capital = current assets - current liabilities

Advantages:

  • Sale of fixed asset that are of no use to Walton
  • In flow of money
  • No debt or loan has to be taken by Walton

Disadvantages:

  • Number of assets of Walton decreases

External Sources of Walton

Bank Loan

Banks offer different types of loan, commercial mortgages and business accounts based on Walton’s business. Interest has to be paid to the bank by the business. To get these loans Walton will also have to show the bank some kind of security.

Advantages:

  • It is a good method for both short term and long term finance
  • As the interest rate for repayment is given Walton can plan ahead
  • Large businesses like Walton can get lower interest rates

Disadvantages:

  • It can become expensive for Walton if the interest rates increases
  • Banks require security on the loan from Walton

Hire Purchase

This method allows Walton to use resources and obtain assets without paying a big sum of money. Regular payments have to be made in order to do such thing. After all the payments have been made the asset belongs to Walton. These assets can be machineries needed to build products and cars to transport them to the outlets.

Advantages:

  • After all the payments Walton will have another asset
  • Payments have to be made over a time which helps Walton to use expensive items
  • Walton can use up to date equipment without spending too much

Disadvantages:

  • This can be an expensive method
  • Walton cannot have full ownership of asset unless all payments are cleared
  • Walton sometimes end up having to pay more because interest is added

Leasing

This method allows Walton to use resources and assets by paying to use them whenever they need it. The businesses do not end up owning the goods at the end of any lease. Leasing is seen as renting an asset.

Advantages:

  • Payments have to be made over a time so large sum of money is not needed by Walton
  • Walton can use the equipment they need without having to buy it

Disadvantages:

  • Can turn out to be expensive
  • The asset belongs to the finance company even after all the payments are made and not to Walton

Share Issues

Issuing shares is offering an ownership of the business. Walton sells shares on the stock exchange. These shares can be sold many times at different price depending on the demand.

Advantages:

  • Allows Walton to raise capital easily
  • Selling shares prevent Walton from taking debts or loans
  • No interest is needed

Disadvantages:

  • Division of profits among new owners
  • Shareholders become part of Walton so the original owners lose some of their rights and control

Factoring

Factoring is when another firm buys businesses’ debts. This way Walton gets immediate money and the debt factoring company collects the debts and gets a cut for their service.

Advantages:

  • Instant cash which means there is more money for Walton
  • Does not require collateral

Disadvantages:

  • Loss of control of Walton
  • Customers pay to the factoring company and not to Walton

Government grants

This is a debt free financing offered by the government to new or established businesses. This gives Walton instant stability to expand their business.

Advantages:

  • Does not have to be repaid to the government
  • Walton will get many social benefits

Disadvantages:

  • These grants come with strict restrictions, as to where Walton can use the money
  • Many conditions apply in order to get these grants

References

Biz / ed. 2012. Biz/ed - Introduction - Sources of Finance | Biz/ed. [ONLINE] Available at: http://www.bized.co.uk/learn/accounting/financial/sources/index.htm. [Accessed 26 February 14]

Facebook . 2011. Waltonbd. [ONLINE] Available at: https://www.facebook.com/Waltonbd. [Accessed 25 February 14].

Iowa State University. 2013. Types and Sources of Finance for Start-up Business | Ag Decision Maker. [ONLINE] Available at: https://www.extension.iastate.edu/agdm/wholefarm/html/c5-92.html. [Accessed 25 February 14]

Walton. 2014. Walton at a Glance. [ONLINE] Available at: http://www.waltonbd.com/index.php?route=information/information&information_id=4. [Accessed 25 February 14]

wikinut. 2009. Business: Source of Finance. [ONLINE] Available at: http://business.wikinut.com/Business%3A-Sources-of-Finance/jryqhksz/#Internal-Sources-of-finance. [Accessed 26 February 14]

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