final fm presentation

8/7/2019 final fm presentation

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SOURCES OF COMPANY FINANCE


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REASONS FOR SOURCING MONEY Capital Asset Acquirement : new machinery or the

construction of a new building or depot.

New product development

Raising of demand


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Sources of Finance


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Business Growth


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Internal Sources of Finance and

GrowthOrganic growth Growth generated

through the development and

expansion of the business itself.

Can be achieved through:

Generating increasing sales

Increasing revenue to impact

on overall profit levels.

Use of retained profit The company

may not distribute the whole of its

profits among its shareholders It may

retain a part of the profits and utilize it as capital


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External Sources of Finance

Long Term may be paid back

after many years or not at all!

Short Term used to cover

fluctuations in cash flow

Inorganic Growth growthgenerated by acquisition


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Long Term

Shares (Shareholders are part owners of a company) Ordinary Shares (Equities):1. Ordinary shareholders have voting rights.

2. Dividend can vary

3. Last to be paid back in event of collapse

4. Share price varies with trade on stock exchange

PreferenceShares:1. Paid before ordinary shareholders

2. Fixed rate of return

3. Cumulative preference shareholders have right to dividend carried over to

next year in event of non-payment

New Share Issues arranged by merchant or investment banks

Rights Issue existing shareholders given right to buy new shares at

discounted rate

Bonus or Scrip Issue change to the share structure increases number of

shares and reduces value but market capitalisation stays the same


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Long term

Loans (Represent creditors to the company not owners)Debentures

Whenever a company wants to borrow a large amount of fund for a

long but fixed period, it can borrow from the general public by issuing

loan certificates called Debentures.

The total amount to be borrowed is divided into units of fixed amount

say of Rs.100 each

Are offered to the public to subscribe in the same manner as of shares.

Are issued under the common seal of the company

Its a written acknowledgement of money borrowed.

Bank loans and mortgages suitable for small to medium sized firms

where property or some other asset acts as security for the loanMerchant or Investment Banks act on behalf of clients to organise and

underwrite raising finance

Government/EU may offer loans in certain circumstancesGrants


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Short Term

Bank loans necessity of paying interest on the payment, repaymentperiods from 1 year upwards but generally no longer than 5 or10 years at most

Overdraft facilities the right to be able to withdraw funds firm do not

currently have

Provides flexibility for a firm

Interest only paid on the amount overdrawn

Overdraft limit the maximum amount allowed to be drawn - the firm

does not have to use all of this limit

Trade credit Careful management of trade credit can help ease cash flow

usually between 28 and 90 days to pay

Factoring the sale of debt to a specialist firm who secures payment and

charges a commission for the service.

Leasing provides the opportunity to secure the use of capital without

ownership effectively a hire agreement


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Inorganic GrowthAcquisitionsThe necessity of financing external inorganic growth

Merger:firms agree to join together both may retain some form of identity

Takeover:One firm secures control of the other, the firm taken over may lose

its identity


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Business Angels


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Business Angels/Angel Investor

An affluent individual who provides capital for a start up

business usually in exchange for convertible debt or ownership

equity

A small but increasing number of angel investors - organize

themselves into angel networks or angel groups to share

research and pool their investment capital.


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V

enture Capital


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V

enture Capital Pooling of capital in the form of limited companies Venture Capital Companies

Looking for investment opportunities in fast growingbusinesses or businesses with highly rated prospects

May also buy out firms in administrationwho are going concerns

May also provide advice, contactsand experience


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Business Angels

Documents

final fm presentation