One of the key problems of financial management is the sources of financing, their cost, structure, and impact on the value of the business. There are various methods of attracting funds from investors and creditors to organize or expand the activities of the enterprise, as well as capital raising strategies.
The Most Important to Know About the Effective Capital Raising Strategies
At the present stage, an increasing number of enterprises are aware of the need for conscious long-term management of financial activities based on scientific methodology for foreseeing its directions and forms, adapting to the general goals of enterprise development, and changing conditions of the external financial environment.
An effective tool for the long-term management of the financial activities of an enterprise subordinated to the implementation of the goals of its general development in the context of ongoing significant changes in macroeconomic nature, the system of state regulation of market processes, the financial market environment, and the associated uncertainty, is the financial strategy.
Capital raising strategies for the efficient use of financial and investment resources play a key role in the management of such companies. Financial and investment strategies correlate the goals of the organization with the resources to achieve them, allow you to correctly determine development priorities, and focus efforts on achieving specific results. For assessment of the organization’s capital raising structure, development of basic parameters of the financing strategy, the following analytical procedures are used:
- assessment of the effect of financial leverage;
- determination of the optimal structure of financing;
- calculation and analysis of the most important indicators of financial management related to the structure of financing (indicators of financial leverage, the weighted average cost of capital, as well as basic earnings per share);
- calculation and analysis of absolute and relative indicators of balance sheet and operational financial stability.
What Are the Types of the Capital Raising Process?
In companies at the maturity stage of the life cycle, as a rule, there is a high level of development of financial management and there is a significant amount of financial resources. Therefore, the financial and investment strategies of such companies will differ from the strategies of companies at earlier stages of the life cycle.
The main task at the early stages is to attract financing, for companies at the stage of recession – ensuring financial stability, for companies at the stage of maturity – the effective disposal of existing financial and investment resources and the creation of conditions for the possible attraction of new resources. In this case, the management team of the target bank to be acquired does not agree with the upcoming transaction and opposes this process. In this case, the acquiring bank has to conduct actions on the securities market in order to take over the acquired bank.
The following types of strategies for the capital raising process are distinguished, which can have an internal and external orientation (but, as a rule, should organically combine both).
- Use your own funds to expand your market niche. It is used by medium and large highly specialized firms operating in established stable markets. Generally unprofitable.
- Combining the financial resources of medium and large firms to carry out costly projects to capture new markets.
- Use of all available sources of financing (loans, issue of shares, creation of consortiums, etc.) for the formation and implementation of promising innovative programs for small and medium-sized enterprises in science-intensive industries. Risky, but highly profitable.