Sources of short-term financing, their costs, challenges and effectiveness: the perspective of a Bangladeshi construction company - Western Engineering (Pvt.) Ltd.

Abstract

The internship report has described the internship, the internship organization, and undertaken a research on short-term financing of the internship company named Western Engineering (Pvt.) Ltd. in order to know the effectiveness of the company’s short-term financing sources. The report started with its first chapter titled overview of internship where the internee student, the internship, and on-site supervisor’s information; job scopes; student’s contribution; student’s benefit; and problems faced have been described. Then, in the second chapter of the report called organization part, an overview of the company, its management, marketing, accounting, operations management, and information system practices have been presented. Moreover, using Porter’s Five Forces, the industry competitiveness of the organization has been analyzed which found that the level of competition in the company’s industry is moderate. Furthermore, the SWOT analysis has also been undertaken in this part of the report that showed the strengths, weaknesses, opportunities, and threats of the company. After that, in the third chapter of the report named project part, a research project has been done to find out the effectiveness of short-term financing sources of Western engineering (Pvt.) Ltd. To achieve its main objective, the research first, started with reviewing the literature where it found that no single study exists on the company on the topic of this research and that no single research considers enough the effects or cost resulting from a short-term financing source’s accompanying challenges while evaluating the effectiveness of the source. In the process of filling up this gap, after stating the research objectives, significance, and methodology, the research, in the findings and analysis part, identified 5 internal and 6 external short-term financing sources used by the company. The report found that all the 5 internal sources do not have any interest costs and all the 6 external sources have different interest costs among which accruals has a highest charge of 60% per annum and banker’s acceptance has the least charge of 3.5% per annum. As a result, when the effectiveness of the sources is evaluated from only interest cost perspective then all the internal sources are equally effective and all the external sources are effective to different degrees for the company where the banker’s acceptance is the most effective and the accruals is the least effective external source. After that, the paper found that the company faces various challenges when financing from its different short-term financing sources and the challenges are related to: the use, characteristics, consistency, and loan size capacity of the sources; and financing application processing time taken by the sources etc. The research found that the internal sources become effective to different degrees instead of being equally effective when their accompanying challenges are considered and when the effects or costs resulting from the accompanying challenges of the external sources are added with their normal interest costs then the degrees of effectiveness of the sources change from what they used to be when only interest costs were considered and the bank loan becomes the most effective source replacing the banker’s acceptance and the accruals remains the least effective external source for the company. Additionally, the research also found that not all the items of accruals are cost free rather most of the items of accruals would cost a firm if it pays late and thus, the firm can, to a notable or useful extent, control accruals by paying late until a tolerable or an acceptable or allowable point with late fees.