6.1.

1 Discuss the second managerial question on the sources of financing of the firm The sources of the financing of the firm represent its capitalization or capital structure, which is a mix of external and internal financing. A decision of the company to acquire financing is affected is affected by several conditions. A key factor to carefully weigh in making a decision is the extent and level of debts that the company should maintain, on one hand, and the associated cost of debt financing on the other. The management should also consider the potential risk that the financing would bring the firm, and the accessibility and availability of financing from financial markets. 6.1.2 What are the three major sources of financing of the firm? The sources of financing are external sources and internal sources. External sources of financing refer to the contributions or amounts provided by creditors and stockholders of the company. Internal sources are those which are obtained from external sources to add value to assets and generate more resources for operation. 6.1.3 Differentiate between external and internal financing sources. 6.1.4 Classify debts into liquidity maturity. Explain each. 6.1.5 Why is short-term debt less risky than long-term debt? 6.1.6 What are the two types of equity capital? Explain each. 6.1.7 Which is superior capital, paid up capital or earned capital? 6.1.8 Explain the meaning of retained earnings. 6.1.9 Differentiate between having versus owing assets and liability decisions and owing versus owning assets and liability decisions 6.1.10 What are the major management issues regarding the financing of the company? Explain each issue and its implications in the financial performance of the firm. 6.1.11 Enumerate and explain some of the financial measures for assessing the shortterm debt management of the company. 6.1.12 Enumerate and explain some of the financial measures for assessing the leverage of the company. 6.1.13 What is the implication of high leverage in the financial capability of the company? 6.1.14 Does leverage affect the financial standing of the company? Explain your answer. 6.1.15 If you were an investor and an offer is given to you to invest in a highly leveraged company, would you invest? If yes, why and what are your reasons? If no, why not? Explain your reasons.

7.1.1 Describe the operating cycle of the firm and how value-added is created The operating cycle consists of the basic functions to acquire and use resources to create added value for operation of the company and raise more resources. Value-added is created as follows: 1. 2. 3. 4. Obtain resources Exchange the resources for other types of resource and add value to such Deliver the benefits of the added value to the customers Get more resources as customers pay for the benefits received

7.1.2 What is the revenue cycle? Illustrate it. 7.1.3 What is the cost cycle? Illustrate it. The costs of resources for adding value and bringing the added value to customers consist of the total amount of resources used in generating the revenues of the firm 7.1.4 The cost of resources used for revenue generation can be classified into three major categories. Enumerate these three categories and explain and give examples of each. 7.1.5 What is meant by financing and statutory costs? Give examples of each. 7.1.6 What are the objectives of cost management? Why is cost management important? 7.1.7 Cite some of the ways to manage costs to achieve effectiveness and describe them. 7.1.8 Define and explain the financial measures called return on sales, return on assets, gross margin ratio, and return on equity. What is the significance of each of these ratios? 7.1.9 What is a cost of goods ratio? What is the significance of this ratio for cost effectiveness? The cost of goods sold ration measures the cost of producing the product as a proportion of total sales. Costs of Goods Sold Ratio = Costs of Goods Sold/Total Sales