Genesis energy long-term financial organization
Genesis energy’s aggressive expansion and growth plans require long-term financial implications that would enable it to achieve the long run goals and objectives. One of the best methods to source for external funding includes debts or equity, whose weighted average costs could make them ideal or not. The cost of debts that the company may take to finance the expansion goal requires that they analyze the advantages and disadvantages of any of them. In this regard, the organization should ensure that it focuses mainly on the debts, since they are less expensive and would be easier to apply in any situation in the organization (Hall & Lerner, 2010). Debt is the best source of short term financing, since it entails tax deductable aspect, which is important for the genesis energy’s achievement of its financial obligations. This mode is shielded from the taxation aspects and is therefore meant to highlight the ideologies that debt is better mode of seeking short-term financial needs in any organization. Also, debt is important for long-term financial implications and should therefore be effectively used to address the financial shortcomings in any organization, especially where equity seems not to be an option.
Based in liquidation, it is important for the company to consider the debts before the equity based on the urgency and bankruptcy settlements. Long-term sources of financing from the perspective of the genesis energy include the owners’ decision to source for funds and also the profits for expansion. Other than these, the company may also get the external sources of funds for long-term goals and objectives through capital market engagements, mutual funds, retained earnings, leasing of company assets, and special funding institutions (Wright, 2012). These are complemented by the company’s decision to take debts and equity to facilitate the achievement of set goals and to ensure that the funds for expansion are sourced and that the repayments are adequately tenable for the organization. These sources have both advantages and demerits for the company, hence should be evaluated based on the obligations, working capital, and the interests during the repayments.
There are several factors that influence the cost of capital in any organization hence should be considered in the genesis energy’s push for long-term financial sourcing such as debts and equity. The investors are interested in assessing the potential risk factors that their investment may invite such as interest, tax, and the repayment potential of the company to achieve the set goals and objectives. Thus, the cost of capital for the genesis energy from the creditors’ perspective includes the potential ability for the investment to attract the same rates of returns that the policy says (Hall & Lerner, 2010). In this context, it is ideal that their portfolios are attractive and that their confidence is raised to address the potential risks to capital costs which they have committed to in the organization. This includes the repayment ability.
The expectations of the shareholders based on the capital cost, and from the assessments in the outcomes from the CAPM is that the company is better off with debts as the source of funding for the expansion goal. The required rates of returns would mean that the company can do well with debts as the source of capital, due to the shielding from the tax and the ease of liquidation when the company is facing financial challenges.