Beruflich Dokumente
Kultur Dokumente
* Why business activities require finance * Differences between capital and revenue
expenditure * Importance of working capital and how to manage it * Analyze the different sources of finances * Role played by main financial institutions * Appropriate sources of finances for different business needs * Analyze the factors the managers consider when taking financial decisions
Almost half of all new ventures fail because of poor financial management -Dun & Brandstreet
* For start-up capital- inject cash to set up business * Finance for working capital- capital needed to pay
day-to-day running costs- wages, credits to customers, raw materials etc. capital needs
Capital Expenditure
Purchase of assets expected to last for more than one year
Revenue Expenditure
Spending on costs and assets except for fixed
* WC=CA-CL
* Too high level opportunity cost of too much * Too low level Business illiquid, bad public
images esp. if one wants loan from banks
CASH
SELL ON CREDIT
PRODUCTION
* Sale of assets
* Assets no longer fully employed can be sold * Assets can be sold to leasing specialists and
leased back
* Hire purchase and leasing * Medium term bank loan * Long term loans from banks * Long-term bonds or debenture * Sales of shares-equity finance
* Bank overdraft:
* Bank allows the business to overdraw o its
account at the bank by writing cheque to a greater value than the balance account always has a limit
* Overdrawn amount is agreed in advance and * Carries high interest rate * Credit period is increased if the debtor doesnt
pay on time
* Trade credit
* Suppliers/creditors are providing good and * Discounts for quick payment and supplier
services without receiving immediate payment as good as lending money confidence are often lost if taken long time to pay
* Debt factoring:
* Factoring is a financial transaction whereby a
business sells its accounts receivable to a third party (called a factor) at a discount * Company A: Creditor- Sold goods of $10,000 at credit * Company B: Debtor- who takes long time to payback * Factoring: Pays Company A, $9,800 and received payment of $ 10,000 from Company B, so bought the debt factoring at 2.04% of profit.
Maximum Loan Amount Minimum Loan Amount Private (Personal Use) Loan portion Up to 80% of quotation price
Rs. 25,00,000 Rs. 2,00,000 Private (Business Use) Up to 80% of quotation price Private (Used) Up to 70% of valuation price
Tenure
* Offered at variable or fixed rate interests * Fixed rates can become more expensive at high
interest rate
Interest Rate 10.50% per annum on EMI basis. (Applicable for new loans only) Tenure Maximum of 15 years Loan shall be terminated on /or before 60 years of age of the borrower. Repayment: Equal Monthly Installments (EMI)
company can do with a loan and are more concerned about debt repayment than bondholders. Bond markets tend to be more forgiving than banks and are often seen as being easier to deal with. As a result, companies are more likely to finance operations by issuing bonds than by borrowing from a bank.
to authorized share capital * Company only pays back the debt when it ceases to function
they can retain their ownership * or go public, where they can raise more capital but lose control
Exchange concerned with smaller companies wanting to raise only limited capital * Apply for full listing on Stock Exchange
* Grants:
* There are many agencies ready to grant funds * But they come with certain conditions attached
such as location and no. of jobs to be created JANAKPURDHAM: Farmers here are compelled to buy fertilizer for their wheat crop at exorbitant price following the rampant black marketeering of the fertilizer procured through government subsidy. The Agriculture Inputs Company Limited's branch office at Janakpur has been providing adequate quantity of fertilizer at subsidized rate to 175 cooperatives in Mahottari district.
* Venture Capital
* Can gain long term finances from specialist
organization/ wealthy individuals share in business start ups
* They are ready to share the risk or purchases * Either they can lose all of their money or expect
a sizeable share of profit in future
involvement until desired standards are met * Does not guarantee success but decreases the chance of failure * Gives managers/owners a clear plan of action to guide esp. in early years of establishment