FINANCIAL STRUCTURE

Financial structures and policies



Financial Structures and Policies

Introduction

To operate the business in a lucrative way it is indispensable for the firm to have a properly devised financial structure and policies. Different businesses operate in a different manner some businesses operate for the purpose of earning a profit, some businesses operate as a nonprofit organization and then there are those institutions that are regulated by and for the government. With the nature of business, the nature of the structure and policies of finances differ. This paper explores financial structure and policies for all the different nature of businesses.

Financial structure

Financial structure refers to the mode that an organization adopt to manage its financial requirements. Different companies according to their nature of their business adopt different modes of financing (Brigham, 2009).

Financial structure for profit organizations

Common stock is one of the most common sources for the profit earning organization, financial structure. In this case it the money that shows the various terms of the financing structure. Another strategy of private firms is to rely on preferred stock (Brealey, Stewart, 2001).

With the aid of the preferred stock profit earning organizations have the option to get some return on their investment. Another option is of debt financing with an equity kicker. This option is available to those firms who have capital in access. Companies adopt this policy to increase the cash flows (Brigham, 2009).

Financial structure for the nonprofit organization

In contrast of profit organizations, not for profit organization adopts different modes to design their financial structure. The market for the nonprofit organization is incomplete and provides fewer avenues for capital generation their financial structure differs in more than one ways. Most of the nonprofit organizations heavily rely on donations (Lindsey, 2006).

The Children Defense Fund (CDF) is an organization that deals on no profit basis and it works for the betterment of lives of children. CDF has inspirational goals and in order to fulfill these goals they need ample financial support. To design their financial structure the organization mainly relies on funds that they gather through their different activities. To raise funds the methods that are used include; direct mail, telemarketing, special events, grant proposals, Internet appeals, planned giving, and cause-related marketing. Variegated sources with which they generate their funds can be discussed in a summarize form as follows:

Foundations and corporations

Individuals

Realized and unrealized gains, net of merger fees

Training Fees

Special events

Endowment interest and dividends

Miscellaneous Organizations and groups

Haley Farm Fees

Sales of publications and merchandise

Financial structure for the government

The financial structure of USA is a market based structure. Financial structure of USA is mainly comprises of such entities as the bond market, bank loans and stock market. If we consider the factors of direct holding of shares and other equity then in this case USA is an outlier than any other economy. This extensive hold of shares and equity expose the financial structure of USA to more risk.

The government of USA gets funds primarily from two sources. These two sources are Firms and ...