Financing Strategy to Support Required Business Growth (Case Study: XYZ)

Abstract

Company XYZ targets an annual revenue of IDR 7.5 billion by 2025. The required growth rate at 70.17% annually is pretty high to achieve the target. However, the company’s actual growth in 2022 at 81.19% outperforms its sustainable growth rate at 29.28% and it seems achievable but requires aggressive expansion across operating systems, inventory, and marketing.   A Company with zero debt has a positive leverage to decide the financing strategy. The company observes to other comparable companies to decide the metrics and the value to select the financing strategy. In this research, we compare three commonly used financing strategies: equity financing, debt financing, and mixed financing. The metrics and requirements are the debt-to-equity ratio at a maximum of 17%, the current ratio at a minimum of 2.25, and the maximal Return on Equity. The selected option is the mixed financing strategy due to being able to meet all of the requirements even though the option did not have the cheapest option or the highest return on equity. The mixed financing strategy consists of full debt financing in the year 2023 and 2024 with a low-interest rate, while in the year 2025, the financing strategy is a combination between equity and debt. XYZ shall sell a maximum of 5.72% of its shares that brings capital at least equal to IDR 329 million and the remaining capital of IDR 329 million shall be raised through a bank loan with low-interest rates.