Funding Options Strategies

In funding plans, you must establish expectations for cash sources and use of excess funds from the firm's operating strategies. Funding plans might include external sources such as debt, preferred equity, common equity, or reinvestment of internal funds. It may include uses like dividends and share repurchases to treasury stock, retirement of debt or preferred equity, or investments in marketable securities.

Factors in funding activities include:

  • Dividend Payout Rate

  • Operating Profit margin and Net Income/Sales

  • Investment in fixed and working capital required to support sales growth

  • Incomes taxes

  • Target Debt Capacity

Two funding methods are useful in these situations:

  • Using the standard method, you may specify sources and use priority orders for funding accounts.

  • Using the target capital structure method, you specify sources and uses within funding categories such as debt, preferred equity and common equity. This establishes a funding policy that manages your model's capital structure.

Each method is useful for different funding states: