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Vinogradova has no procedure for deciding on investment in new machinery or equipment, because previously all investment was decided by the Ministry at Zamina. But now there is a strong possibility of foreign investment, and the company will soon be privatized, so it is vital for the management to evaluate all investment proposals. Some managers may want to buy shares in the business themselves. If they decide to increase productivity it will be necessary to buy more efficient plant. This can be done by borrowing rather than seeking new investment. It will raise the gearing – in other words, increase borrowing in proportion to invested capital. At present Vinogradova’s gearing is very low. Outstanding loans are only 5 per cent of the estimated value of invested assets. There is also a small accumulated reserve (cash in the bank which has been built up since the change of government in 198x). This money should be reinvested and not distributed to shareholders.
Finance
There are various ways in which the Manara Lombard Bank can help Vinogradova obtain capital.
Short-term finance
The possibilities are a loan or overdraft. Another form of short-term financing, factoring, is something the bank may be able to offer later when enough credit information on the debtors is available.
Medium-term finance
Leasing which can be arranged by the bank’s finance company, Barakonia Funding Ltd., is a form of capital suitable for buying capital goods. In other words, equipment, transport and machinery. The advantage of this method to Vinogradova is that the equipment would become available immediately with a small first payment. Leasing is a form of renting while lease purchase is a form ...