The choice of a product or service that an entrepreneur wishes to invest in is an important factor to consider before bringing it to the market. Any investment project chosen should produce returns to benefit all stakeholders and other interested parties that the project affects directly or indirectly.
The paper utilizes axe anarchy fragrance for women, a new product that Unilever Company has launched on the market, as a case product in a bid to show the financial implication or consideration that the case company made before investing in the product.
Unilever is a big corporation that deals with production or manufacture of many kinds of household products. Axe anarchy is the latest innovation or rather new product that the company has launched on its market (Unilever PLV, 2012, Para. 3). This product is therefore financed by the company. The company has put in place enough funds that are used to innovate and manufacture new products on the market.
The company is quoted in the securities exchange market as exemplary in terms of the quality of its products. Some of its finances come from the owners of the business who are the shareholders.
Because of the high amount of money the company receives from its shareholders, it is able to carry out various innovations besides venturing in the production of multiple types of products. Unilever PLV therefore generates its funds through the sale of shares to its investors, a process known as equity funding (Unilever PLV, 2011, p. 15).
This form of acquiring fund is advantageous because investors who buy the shares are not entitled to any interest. Bondholders, on the other hand, require that interest be paid to them. Therefore, this method allows the company to access capital for use to produce and market its products. The investors are only entitled to profits and losses in equal measures.
Hence, the method does not have any impact to the company. Another advantage that the company will accrue from this form of financing is that there is no collateral required for this type of investment. Furthermore, the company is only obliged to pay dividends on the earnings that it makes. This therefore protects the company from any court proceedings or accusations when the company fails to make profits on the products.
Therefore, the business is not faced with a threat of collapse, as it can come up with other strategies to ensure survival. Furthermore, investing or financing this project through shared capital makes the company have a full control of the funds. The company is able to keep the funds indefinitely without being asked by the investors (Safania, Nagaraju & Roohi, 2011 p.78).
Furthermore, the company has an opportunity to make decisions on whether to invest in the product or not. The decision is solely based on the management of the company that has been given the responsibility to carry out managerial decisions on the behavior of the shareholders if they help in the growth of the company besides helping further in accruing of more profits for the organization.
Production of new products or services requires the organization to carry out a clear calculation on the total cost of producing the new product or service to ensure that it gets some profits after the product is sold. In this case, Unilever PLC Company will be required to analyze each investment components of producing axe anarchy fragrance for women to the moment it is sold. Therefore, various factors will be put into consideration.
One of the investment components of producing this new product is the cost of producing or purchasing raw materials that are required for the manufacturing of the product. The cost of transportation of raw material to the company for production, as well as distribution to the suppliers and retailers should be factored in the company’s marketing strategies.
The cost of paying salaries to the employees who ensure that the product is manufactured or converted from its raw materials to the time it reaches the consumers should also be provided. Logistic costs are also paramount and worth considering such as storage costs and administration costs among other costs. It is also important to consider the costs related to government taxes. Other costs include marketing.
For the product to reach a wide market to attract high sales, the company needs to invest heavily on its marketing strategies. Media must be used to reach a wide audience coverage including television ads, billboards, internet, social media, and traditional forms such as print media among many other mediums.
All these costs should be calculated and the right figure known to help the company in determining its price that should be competitive in the market to enable many customers to use the products. The product should also be of high quality to suit the target audience i.e. Young boys and girls.
By breaking this cost down, the company will also be able to know the amount of money that it has invested in the new product, as this will enable it to have a clear estimate or projection of the profits that it is likely to accrue from the sale of the product.
Furthermore, this analysis is vital is enabling the company to either progress with production of the product or not. For instance, if the cost of production is very high and surpasses the income level of the target audience or customer, it will not be viable for the company to produce such a product.
The company can as well seek an alternative source of funding that costs less. In this case, the best option that the company can source its funds is through debt financing. This refers to borrowing of funds in the form of loans that are repaid over a certain period. The company can decide to borrow funds over a short term-less than one year- or a long-term scheme, which extends to more than one year.
The major sources that the company can seek for these funds are from government agencies or banks that provide loans with a certain percentage of interest. This option of sourcing for finances has a number of benefits. For instance, the interest that is paid on the loan is deductible. Therefore, the company will benefit from tax advantage. In addition, the company will be able to retain its ownership.
The lender of the money, whether financial institution or government agencies, cannot get or receive ownership of the company. Furthermore, lenders cannot claim any future profits or revenues of the company, as the lender will only be given the principle loan plus the interest as agreed between the lender and the party.
It is also easy to raise funds using debt financing because it does not require the company or the borrower to comply with the federal or state securities’ regulations. Debt financing is also a very good method of sourcing for funds because a company is able to establish good relationships with the lenders. Hence, it can secure future financial assistance of a short and or a long-term financial health in time of need (Mitton, 2008, p.27).
Ensuring that the history of a company is conducive for borrowing, the company is required to ensure that there is balance between the debt and equity ratio. The company must also demonstrate that it can be able to repay the loan within the stipulated duration to time. Furthermore, the company can source its funds from debt financing because it enables the company to have freedom in terms of its financials.
This helps the company to invest in projects or products that it feels can boost its profits. Axe anarchy fragrance for women is such a product. It therefore allows the company the discretion to make its own strategic decisions that can help to promote or stir economic growth of the company.
Therefore, the company can opt for this form of sourcing its fund as an alternative method. The debt equity method of sourcing for funds is one of the cheapest and affordable methods that will enable the company to meet its needs including meeting costs of production and marketing of the products.
In conclusion, finding the right source of funds for the Unilever Company can influence its operation positively when it comes to investing in new products or services. The paper has used axe anarchy fragrance for women as a case product from the company. Therefore, the use of equity financing whereby the company sells its shares is one of the appropriate sources of funds that Unilever used to seek funds and promote this product.
Various investment components are however important in helping business decide whether to invest in a project or not. An alternative source of funds that can be used as an alternative is debt financing because it costs less to the company.
Reference List
Mitton, T. (2008). Why Have Debt Ratios Increased for Firms in Emerging Markets?. European Financial Management 14(1), 127-151.
Safania, S., Nagaraju, B., & Roohi, M. (2011). Relationship between Long Term Debt- to-Equity ratio and Share Price — a study on NSE, INDIA (2007-2010). International Journal of Business Management & Economic Research, 2(4), 278- 283.
Unilever PLV (2011). Financial Statement. Web.
Unilever PLV. (2012). Latest from out brands: Axes launches its first fragrance for women. Web.