Sources of Finance
Sources of finance are the different methods for a business to earn and obtain money. There are lots of ways to obtain money but two large basic sources of finance, which are the “owner’s capital” and “capital borrowed”. They are also called internal sources of finance and external sources of finance. In those sources, they are mainly divided in two groups, which are short-term sources of finance and long-term sources of finance.
Short-Term Finance
Short-term finance is an amount of money, which is borrowed, will be repaid in one year. (Nickels, McHugh, McHugh, N.D.)
Long-Term Finance
Long-term finance is an amount of borrowed money will be repaid over a specific time period which is longer than one year or into the future. (Nickels, McHugh, McHugh, N.D.)
Internal Sources of Finance
Internal sources are the sources of information within the company, used to compile market research as a basis for marketing decisions (ITS Education Asia, 2005). In the internal sources, some of the funds are come from the owners themselves, and some of the funds are provided by the families and friends when the type of the business firms is sole trader or partnership. Besides, those funds can also be generated from the profits of the business. In the “owner’s capital”, it involves two several ways, they are the owner’s capital, profits, retained earnings, dividend policy, credit control, reducing inventories levels, delaying payment to trade payables, sale of stock and debt collection.
Internal Sources of Short-Term Finance
Owner’s capital means the resources that the entrepreneur put when he starts the business. That capital can be many different things, for example machineries, equipment and money. In different forms of business ...
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...ower to wait a year or before to start to make the repayment. Somehow, some loans can be repaid at the end of the period instead of instalments. Besides, security, for example some assets and the properties of the business, is needed for the bank loan. There are three advantages in the bank loan. First, the timing and the amount of the repayment is known when getting the bank loan, so it is quite easy to budget. Second, there is also a repayment holiday, so the repayment schedule is quite flexibility. Third, the interest rates can be discussed and it can be lower than the overdraft. However, it is because the business loan is a long-term commitment, which is needed to service and this will be to high interest rate. Besides, security such as the house of the business owner is needed and this will not be good to the owner if the business is failed. (Cox, Fardon, 2009)
I would say that the source would be through investors, or using assets to borrow the money.
1.0bn working capital line (“Revolving Credit Facility” or “RCL”). While they had learned from their most
Thesis: Businesses deem financing necessary when they are just beginning, expanding, or recovering; Debt financing and equity financing have many advantages and disadvantages but also change the entire accounting method that is to be considered while running the business. Debt financing has both advantages and disadvantages. Debt financing is a business’ way to start up, expand, or recover by borrowing money from a person or company. The money borrowed has to be paid back along with the interest that was accrued during the length of time the loan was carried out. This option is great for company’s that do not want investors.
As an investor with several types of securities, I am looking for long-term stability towards a retirement fund. The combination of several different stocks and mutual funds allows for the safety of the investments. By investing long-term in different accounts, I have the ability to gain more in the long-run with less risk of not lose all my savings on one investment.
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If you receive cash you are likely to save it and put it in the bank. Thus, what a business sacrifices by having to wait for the cash inflows is the interest lost on the sum that would have been saved.
Borrow long-term loans from local banks – These are a common way of financing major purchases of an organization. An advantage is that it is directly linked to an organizations operating capacity. Another advantage of long-term loans from local banks is that it enables a firm engage in large projects. Although its disadvantage is that the banks charge high interest rates.
Ÿ Capital structure/investment - This information is taking from the Balance sheet, but also from the Profit and Loss Account. This is examining the sources of finance the company has used and also looking at it as a potential investment opportunity. There are certain features, which must be present if financial information is to meet the needs of the user. The two most important features are that: Ÿ The information should be relevant to those who are using it.
Research on the Sources of Finance for a Business Firms sometimes need to raise finance for Working Capital and Capital Expenditure. Explain what each is and give examples. · Working Capital (or Revenue Expenditure) The working capital is made up of the current assets net of the current liabilities. It is vital to a business to have sufficient working capital to meet all its requirements. Many businesses have gone under, not because they were unprofitable, but because they suffered from shortages of working capital.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.
Many organizations have maximized the use of cash on hand by effective cash management techniques and the use of short-term financing. This paper will discuss various cash management techniques and short-term financing methods used by organizations.
The resource of a business that owner own are called assets for example building, machinery etc. In other words we can say the thing that owned by a person a regard to company and having value, commitment and legacies.
period of time and, in return, may receive a "bond". The bond issuer agrees to a fixed rate of
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Never have I ever climbed a mountain peak. As a child, I imagined myself conducting expeditions in deep-frozen pathways, leading amateur explorers to the top of the world, and instructing rookies in surviving harsh blizzards. Even though slightly altered, my childhood dream has been achieved. I led a team of fellow classmates, in my Strategic Management course, to the success summit of a financial competition. Over the course of a semester, I and my teammates were supposed to create and manage a company of the IT industry, in a computer-simulated environment, along with other four rival teams. I dealt with strategy and financial matters of our virtual enterprise, while my colleagues were working on marketing and manufacturing. During the four months of the exercise, I have experienced finance from various aspects: capital budgeting, through selecting favorable investment for upcoming quarters; debt management, by assessing the necessary amount and efficiency of loans; profitability analysis and dividend policy, which had been used to compile the company’s general performance index. Working in a multinational team, which included an American, a Norwegian and a Moldovan, strengthen my negotiations skills, as well as flexibility and cooperation. But above all, this experience intensified my passion for finance. Of course, a pleasant bonus was the fact that, in the end, our company’s financial performance was six times the performance of second-best team.