MADISON PLC Case Solution & Answer

MADISON PLC Case Solution

In comparison, when the working capital figure is negative, it means that current liabilities are greater than current assets, from which the total cash flow for the period of business operations are measured. Evaluating variations in working capital requirement is crucial for any organization, but it is more crucial for those enterprises whose cash flows are affected by erratic and seasonal business operations (Greuning, 2006).

Different Sources of funding:

Madison Plc. can use various sources of funding, based on the availability, effect of each funding on financial performance and other evaluations.

The capital markets:

• New share issues, for example, by companies acquiring a stock market listing for the first time.
• Rights issues
• Retained earnings
• Bank borrowing
• Government sources

Ordinary (equity) shares

Pros and Cons

Madison can issue more shares and this will give funds for the project. The advantage of such source of fund is that there will be no debt on the capital structure. The company will have great liquidity and solvency position. With strong financial position, the company can easily get debt whenever needed. The major disadvantage is that there will be dilution of control due to increased shareholders. Moreover, the EPS or Dividends per share might decrease.

Deferred ordinary shares

Madison can issue new shares to its existing shareholders at deferred issuance. Ordinary shareholders put funds into their company:

1. a) By paying for a new issue of shares.

   b) Through retained profits.

Rights issues

Madison has no debt in its capital structure, it is thus a better option after ordinary issue………………..

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