Sources Of Finance For Kfc Finance Essay

Sources Of Finance For Kfc Finance EssayKFC began with Col unriv all in alledl Har polish Sanders. He discovered his penchant for training when he was only 9 socio-economic classs old. Through the long time he grew up to become a personage the world knows as Col peerlessl Sanders, crack up of KFC.He reached celebrity status in 1952, when he decided to exemption his famous Kentucky Fried Chicken recipe blends of 11 herbs and spices to the rest of America. By the early 70s, that special recipe reached Malaysia.KFC Holdings owns approximately 27 Kedai Ayamas and 4 Ayamas Depots, make them the nations first branded chicken and chicken-based retain chain. KFC Holdings operates the KFC chain of restaurants in Malaysian, groovy of Singapore and Brunei (523 restaurants) and the Rasamas chain of restaurants in Malaysia (about 37 outlets).Sources of invent argon where pay comes from. in that respect atomic number 18 trey kinds of sources which be Bank loans, Owners ( ap put) hood letter and Trade doctrine .Finance is money which is a scarce resource. To obtain it, a art has to compete for it. Individuals, the government and other businesses all seek money to finance their needs. Those with money to lend go away lend it provided the rate of redeem (interest), the take a chance and flexibility (how quickly the money dirty dog be repossessed) argon legitimate with their expectations.The word lend of tenner implies to utterly-run the word invest implies to big- line. Individuals or organisations that lend money, expect to get their money binding, with a fixed yearbook return in a comparatively short prison bound. Those who invest in a partnership become part-owners mete out holders. They expect regular lettuce of cash dividends (whose size varies with the companys success) plus an increase in the comfort of their shares.A major source of finance for many businesses is the contain earn from gross sales to customers. A business just sta rting up or one expanding rapidly has to raise its finance from other sources. on that point are three kind of finance question which relates the finance which the management should consider.Duration for how long is the finance required?Cost which source of finance is the least high-ticket(pre tokenish)?repayment what level is acceptableDurationDuration depends on the intellectual the money is needed. No-one would take out a 25 year mortgage to finance the leveraging of a personal HiFi. Few people would upright a ho rehearse with a bank overdraft. straines put one across the same principles of duplicate the purpose of finance with the source of finance. This makes sense all round. For the business it ensures that finance is guaranteed as long as it is needed.For the investor it ensures that adequate security is available for the sequence of the loan as in the case of a 20 year loan secured against a property that will continue to baffle respect for all the 20 years.Cost In general, businesses look for the cheapest source of finance. The easiest direction to compare the cost of finance is to express the annual payment to lenders/investors as a percentage of the amount of finance provided. Interest on a loan sess be expressed in percentage terms. So can the rate of return to shareholders.Return on investment in shares = Dividend per share, share charge change since the start of yearThe rate of return expected by shareholders becomes the cost to the business of using this form of finance.repaymentA business should non get into a position where all of its sugars are being swallowed up in interest payments. There is a real danger of borrowing too much. The same applies to individuals. fictional char bearer of sources of financegovernment bribeloan hackneyedleasingventure majusculehire purchase customary shareswarrantretailed earningborrowingsOrdinary SharesOrdinary shares to a fault known as ballpark post or voting share is a share of stock gi ving stockholders the right to vote no matters of corporate policy and the composition of the members of the board of directors.Ordinary shares are resultant roled to the owners of a company. They have a nominal or face value, typically of RM1 or 50 cents. The market value of a quoted companys shares bears no relationship to their nominal value, except that when ordinary shares are issued for cash, the issue price must be equal to or be more than the nominal value of the shares. mouthful Shares taste sensation shares, to a fault called preferred stock or preferred shares, is typically a higher ranking stock than common stock, and its terms are negotiated between the pot and the investor. Preference shares usually carries no voting rights, exactly whitethorn carry priority over common stock in the payment of dividends and upon liquidatePreference shares may carry a dividend that is gainful out prior to any dividends being paid to common stock holders. Preference shares may have a convertibility feature into common stock. Preference stockholders will be paid out in assets before common stockholders and after debt holders in bankruptcy. Terms of the preferred stock are express in a Certificate of Designation.From the companys point of view, preference shares are profitable in that Dividends do not have to be paid in a year in which profits are poor, while this is not the case with interest payments on long term debt (loans or debentures). Since they do not carry voting rights, preference shares avoid diluting the control of be shareholders while an issue of fairness shares would not. The issue of preference shares does not spring the companys borrowing power, at least in the sense that preference share capital is not secured against assets in the business.Loan StockCommon or preferred stock shares that are used as collateral to secure a loan from another party.The loan will earn a fixed interest rate, much like a standard loan, and can be secured or unsec ured.A secured loan stock may also be called a convertible loan stock if the loan stock can be directly converted to common shares under undertake conditions and with a pre-determined conversion rate, as with an irredeemable convertible unsecured loan stock (ICULS).Retained EarningsRetained earnings refer to the portion of terminal income which is bear by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation makes a loss, then that loss is carry and called variously retained losses, hoard losses or salt away deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings.Retained earnings are reported in the shareholders faithfulness section of the balance sheet. Companies with pass accumulated losses may refer to negative shareholders equity as a shareholders deficit. A complete report of the retained earnings or retained losses is presented in the contestation of retained earnings or State ment of retained losses.The major reasons for using retained earnings to finance sunrise(prenominal) investments, rather than to pay higher dividends and then raise unexampled equity for the new investments, are as followsa) The management of many companies believes that retained earnings are silver which do not cost anything, although this is not full-strength. However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash.b) The dividend policy of the company is in practice determined by the directors. From their standpoint, retained earnings are an mesmeric source of finance because investment projects can be undertaken without involving either the shareholders or any outsiders.c) The use of retained earnings as opposed to new shares or debentures avoids issue costs.d) The use of retained earnings avoids the possibility of a change in control resulting from an issue of new shares.BorrowingsReceiving something of value in exchang e for an obligation to pay back something of usually greater value at a particular time in the future. Borrowings are change integrity into three terms.Short term lending may be in the form ofa) An overdraft, which a company should keep within a as genuine set by the bank. Interest is charged (at a multivariate rate) on the amount by which the company is overdrawn from day to dayb) A short-term loan, for up to three years.Medium-term loans are loans for a fulfilment of from three to ten years. The rate of interest charged on medium-term bank lending to greathearted companies will be a set margin, with the size of the margin depending on the credit standing and riskiness of the borrower. A loan may have a fixed rate of interest or a variable interest rate, so that the rate of interest charged will be adjusted every three, six, nine or twelve months in delimit with recent movements in the Base Lending Rate. acheer-term bank loans will sometimes be available, usually for the purc hase of property, where the loan takes the form of a mortgage.LeasingLeasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a serial of contractual, periodic, tax deductible payments. The lessee is the receiver of the services or the assets under the look at contract and the lessor is the owner of the assets. The relationship between the tenant and the set ashorelord is called a tenancy, and can be for a fixed or an indefinite period of time (called the term of the claim). The consideration for the lease is called rent. There are two basic forms of lease operating leases and finance leases.Operating leasesOperating leases are term of a contract agreements between the lessor and the lessee wherebya) The lessor supplies the equipment to the lesseeb) The lessor is responsible for servicing and maintaining the leased equipmentFinance leasesFinance leases are lease agreements between the user of the leased asset (the lessee) and a su pplier of finance (the lessor) for most, or all, of the assets expected useful life.Suppose that a company decides to obtain a company car and finance the acquisition by means of a finance lease. A car dealer will supply the car. A finance house will agree to act as lessor in a finance leasing arrangement, and so will purchase the car from the dealer and lease it to the company. The company will take self-possession of the car from the car dealer, and make regular payments (monthly, quarterly, six monthly or annually) to the finance house under the terms of the lease. take aim PurchaseHire purchase is the legal term for a contract developed in the United Kingdom. It is also called closed-end leasing. In cases where a buyer cannot afford to pay the asked price for an item of property as a lump agree but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interes t has been paid in equal installments, the buyer may then exercise an option to buy the goods at a preset price (usually a nominal sum) or return the goods to the owner game Capital imperil capital (also known as VC or Venture) is a type of private equity capital typically provided for early-stage, high-potential, growth companies in the interest of generating a return through an pillow slipual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company. It is typical for venture capital investors to identify and back companies in high technology industries such as biotechnology and ICT (information and intercourse technologyFranchisingFranchising is a method of expanding business on less capital than would otherwise be needed. For suitable businesses, it is an alternative to raising extra capital for growth. Franchisors include Budget Rent-a-Car, Wimpy, Nandos Chicken and Chic ken InnOther affirmable alternatives can be used by KFCHKFC Holdings have been running their exertion with all the types of source of finance as stated above. In narrate to further enhance themselves as well improving their investors relations, they can apply other kind of source to run their businessKFC has not issue warrants throughout the financial year. Warrants are, in effect, options granted by the business that lenify the holder to subscribe for a specified quantity of ordinary shares, for a specified price at, or after, a specified time- usually some(prenominal) years next their issue. The business would usually issue the warrants in one of two ways, that is to sell them, in which case it would derive a cash inflow, or attach them to a loan stock issue as a sweetener or incentive to investors to take up the loan stock.Apart from that, KFC can even issue Employees Share Option shunning at various options. An employee share scheme is one way to adjudge employees a stak e in your business and helpimprove its performance. As employees normally have to remain with the business to get this benefit, share schemes win loyalty and can help you retain valued staff. They act as an incentive or reward and may also help recruitment. (Extracted from Business Link, http//www.businesslink.gov.uk/bdotg/action/layer?topicId=1074472937)In fact, KFC could even use hire purchase to source their finance. Hire purchase is referred to sales promotion device that creates customers purchasing power in the form of a fixed cost, fixed period installment loan, secured by a lien on the purchased item as the collateral. In case of capital equipment, the customer repays the loan from the earnings generated by the purchased asset (which otherwise would have remained unsold due to the customers lack of cash).During the repayment period the buyer has the possession and use but not the willpower (title) to the item. Only upon the full payment of the loan, the title passes to th e buyer. Also called installment buying, it is a social innovation that expands the economy with additional income.(Extracted from Business Dictionary.com,http//www.businessdictionary.com/definition/hire-purchase.html) adjunctShare capitalFrom the financial statement for the year 2008, KFC holdings issued 1,000,0000 new ordinary shares valued RM1.00 each for the year 2008 and 2007. . However, only 198,275 shares at RM 1.00 each was issued and richly paid.SHARE CAPITALNumber of OrdinaryShares of RM1 each Amount2008 2007 2008 2007 2008 2007000 000 RM000 RM000 classicAt 1 January/ 31 December 1,000,000 1,000,000 1,000,000 1,000,000Issued and fully paidAt 1 January/ 31 December 198,275 198,275 198,275 198,275Retained EarningsThe percentage of net earnings not paid outas dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet.The radiation diagram calculates retained earnings by adding ne t income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholdersKFC Holdings recorded RM 316,703,000 of retained earnings in year 2008 compared to RM 257,611,000 in year 2007 for company. This shows that KFC retained their net earnings higher in year 2008 so that they can reinvest in its core business to pay its debt.BorrowingsBorrowings are classified under short term borrowings and long term borrowings. KFC Holdings borrowed RM 20,000,000 in year 2008 while at that place were no borrowings for the year 2007 under company.On the other hand, KFCs long term borrowings amounted to RM 40,000,000 in year 2008 compared to RM 60,000,000 in year 2007. The total borrowings for the two years were RM 60,000,000 respectively. (Refer note 26)The term loans granted to the Company are secured by the followingi First and third party charge over certain land and buildings as disclosed in logical argument 12(b) and musical note 15ii De posits pledged with licensed banks as disclosed in Note 18iii Corporate guarantee of the Company and a related to companyiv Debenture of a subsidiarys assetsCompany2008 2007RM000 RM000Short term borrowingsSecuredTerm loans 20,000 unlockedTerm loans 20,000 Long term borrowingsSecuredTerm loans 40,000 60,000UnsecuredTerm loans 40,000 60,000 fundamental borrowingsSecuredTerm loans 60,000 60,000UnsecuredTerm loans 60,000 60,000LeasingKFCs leasing is analysed as long term leasehold land and short term leasehold land. The groups long term leasehold land notched RM 63,733,000 in 2008 compared to RM 63,868,000 in 2007. However, their short term leasehold land was RM 68,000 in 2008 while in year 2007, it was RM 73,000. Overall, their total leasing was RM 63,841,000 and RM 63,941,000 for the two years respectively.Leasehold land with an aggregate carrying value of RM30, 434,000 (2007 RM30, 822,000) are pledged as securities for borrowings.Group2008 2007RM000 RM000At 1 January 63,941 62,6 87Addition 1,830Disposal (106)Acquisition of a subsidiary 722 Reclassification from property, plant and equipment 333Amortisation for the year (822) (803)At 31 December 63,841 63,941Analysed asLong term leasehold land 63,773 63,868Short term leasehold land 68 7363,841 63,941INCOME STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2008Group CompanyNote 2008 2007 2008 2007RM000 RM000 RM000 RM000Revenue 3 2,179,788 1,730,371 97,220 88,000Cost of sales 4 (1,064,548) (770,048) Gross profit 1,115,240 960,323 97,220 88,000Other income 22,615 22,797 30,210 26,972Administrative expenses (118,670) (109,061) (28,757) (22,713)Selling and marketing expenses (837,547) (712,109) Other expenses (6,622) (24) (2,310) (26,229)Operating profit 175,016 161,926 96,363 66,030Finance costs 5 (7,559) (11,302) (2,887) (5,823)Profit before tax 6 167,457 150,624 93,476 60,207Income tax expense 9 (47,107) (45,081) (9,522) (23,437)Profit for the year 120,350 105,543 83,954 36,770Attributable to comeliness holders of the Company 118,535 1 04,269Minority interests 1,815 1,274120,350 105,543Earnings per share attributableto equity holders of the Company (sen)Basic, for profit for the year 10 59.8 52.6BALANCE SHEETSAS AT 31 DECEMBER 2008Group CompanyNote 2008 2007 2008 2007RM000 RM000 RM000 RM000AssetsNon-current assetsProperty, plant and equipment 12 615,059 529,658 19,750 19,908Investments in subsidiaries 13 354,250 353,590Investment properties 14 898 2,000 585Prepaid land lease payments 15 63,84 1 63,941 Intangible assets 16 69,835 68,063 Other investment 17 4,500 Fixed deposits 18 6,324 6,324749,633 674,486 374,000 380,407Current assetsInventories 19 158,474 112,312 Trade and other receivables 20 128,112 78,972 222,742 156,642Other investment 17 20,203 Cash and bank balances 21 97,985 140,358 6,797 11,826404,774 331,642 229,539 168,468 perfect assets 1,154,407 1,006,128 603,539 548,875Equity and liabilitiesEquity attributable to equityholders of the companyShare capital 22 198,27 5 198,275 198,275 198,275Other reserves 23 47,705 50,963 22,080 26,560Retained earnings 24 446,178 352,783 316,703 257,611692,158 602,021 537,058 482,446Minority interests 10,232 6,920 Total equity 702,390 608,941 537,058 482,446Non-current liabilitiesRetirement benefit obligations 25 3,313 3,758 Borrowings 26 65,944 110,907 40,000 60,000Deferred tax liabilities 27 31,602 25,036 107 444100,859 139,701 40,107 60,444Current liabilitiesRetirement benefit obligations 25 623 Borrowings 26 75,111 12,080 20,000 Trade and other payables 28 275,424 242,110 6,374 5,985Current tax payable 3,296 351,158 257,486 26,374 5,985Total liabilities 452,017 397,187 66,481 66,429Total equity and liabilities 1,154,407 1,006,128 603,539 548,875