UNIT 2, MANAGING FINANCIAL RESOURCES AND DECISIONS Essay

UNIT 2, MANAGING FINANCIAL RESOURCES AND DECISIONS - Essay Example As a financial advisor, the business performance can be evaluated on the basis of the information that is obtained from the owner. In explaining the source of finance for Motors Parts Direct Limited, it is important to understand its meaning for the business. Financing is extremely important for starting a business and draw profit from it. There are various sources of finance when a business is looking for start-up. The need for source of finance varies according to the type of business. For processing a business huge amount of capital is needed (Iowa State University Extension, 2013). The source of finance for a business is basically equity or debt. In case of MPD Ltd only debt financing is used as source of finance. However, there are both long term and long term debt for the business. The short and long term debt instruments for the business are discussed hence forth. From the above table it can be stated that the business has started its operation with the help of loan and overdraft. The two types of debt instruments are noted as the liability for the company (Iowa State University Extension, 2013). This liabilities aims at decreasing the liquidity of the company, if the current asset base is not high; even the business does not have enough cash position to maintain a stable working capital. For maintaining its working capital the company requires short term finance of  £ 1,200,000. He also needs the finance for paying the suppliers and make payment to its employees. He needs the amount as these cash are paid even before payments are received from customers. Loan is a useful source of finance for business, which is provided by a single entity at an interest rate. This interest rate is specified by the lender of the loan and it is not decided on mutual basis. If the lender is a bank then the interest rate depends upon the demand of the loan and the rate that are imposed on the banks by the central banks (Steffan, 2008; Fabozzi, 1998).