Multiple sources of finance
- 1. PRESENTED BY : RAVIKIRAN KATTOLI
- 2. In our present day economy, finance is defined as the provision of money at the time when it is required. Every enterprise, whether big, medium or small, needs finance to carry on its operations and to achieve its targets. A business cannot function unless adequate funds are made available to it. The need for funds arises from the stage when an entrepreneur makes a decision to start a business.
- 3. Some funds are needed immediately say for the purchase of plant and machinery, furniture, and other fixed assets. Similarly, some funds are required for day-to-day operations, say to purchase raw materials, pay salaries to employees, etc. Also when the business expands, it needs funds.
- 4. 1. Setting up a business 2. Need to finance our day-to-day activities 3. Expansion 4. Research into new products 5. Special situations such as a fall in sales.
- 6. The portion of the net earnings of the company that is not distributed as dividends is known as retained earnings. The amount of retained earnings available depends on the dividend policy of the company. It is generally used for growth and expansion of the company.
- 7. The credit extended by one trader to another for purchasing goods or services is known as trade credit. Trade credit facilitates the purchase of supplies on credit. Small and new firms are usually more dependent on trade credit, as they find it relatively difficult to obtain funds from other sources.
- 8. A lease is a contractual agreement whereby the owner of an asset (lessor) grants the right to use the asset to the other party (lessee). The lessor charges a periodic payment for renting of an asset for some specified period called lease rent.
- 9. A company can raise funds by inviting the public to deposit their savings with their company. Pubic deposits may take care of both long and short-term financial requirements of business. Rate of interest on deposits is usually higher than that offered by banks and other financial institutions.
- 10. It is an unsecured promissory note issued by a firm to raise funds for a short period. The maturity period of commercial paper usually ranges from 90 days to 364 days. Being unsecured, only firms having good credit rating can issue the CP.
- 11. Equity shares represents the ownership capital of a company. Due to their fluctuating earnings, equity shareholders are called risk bearers of the company. These shareholders enjoy higher returns during prosperity and have a say in the management of a company, through exercising their voting rights.
- 12. These shares provide a preferential right to the shareholders with respect to payment of earnings and the repayment of capital. Investors who prefer steady income without undertaking higher risks prefer these shares.
- 13. Debenture represents the loan capital of a company and the holders of debentures are the creditors. These are the fixed charged funds that carry a fixed rate of interest. The issue of debentures is suitable in the situation when the sales and earnings of the company are relatively stable.
- 14. Banks provide short and medium-term loans to firms of all sizes. The loan is repaid either in lump sum or in installments. The rate of interest charged by a bank depends upon factors including the characteristics of the borrowing firm and the level of interest rates in the economy.
- 15. Both central and state governments have established a number of financial institutions all over the country to provide industrial finance to companies engaged in business. This source of financing is considered suitable when large funds are required for expansion, reorganisation and modernisation of the enterprise.
- 16. With liberalisation and globalisation of the economy, Indian companies have started generating funds from international markets. The international sources from where the funds can be procured include foreign currency loans from commercial banks, financial assistance provided by international agencies and development banks.
- 17. Cost Financial strength and stability of operations Purpose and time period Flexibility and ease Tax benefits
- 18. Advance financial management book