FINANCIAL ACCOUNTINGFINANCIAL ACCOUNTING

PRESENTINGPRESENTING

ONON

SOURCES OF SOURCES OF

FINANCE FINANCE

GUIDED BY :- MEGHNA MISSGUIDED BY :- MEGHNA MISS

GROUP MEMBER :1.VIRAL SHAH 44GROUP MEMBER :1.VIRAL SHAH 44

2.YASH AJMERA 22.YASH AJMERA 2

3.PAWAN MAMANIYA 24 3.PAWAN MAMANIYA 24

4.SONU PETHANI 344.SONU PETHANI 34

5.SAGAR SHAH 425.SAGAR SHAH 42

6.MAHESH TRIPATHI 46 6.MAHESH TRIPATHI 46

7.MONISH GOSRANI 127.MONISH GOSRANI 12

WHAT IS SOURCE OF FINANCE?

Sources of FinanceSources of Finance

Business GrowthBusiness Growth

Internal Sources of Finance and GrowthInternal Sources of Finance and Growth

‘‘Organic growth’Organic growth’ – growth – growth generated through the generated through the development and expansion of development and expansion of the business itself. Can be the business itself. Can be achieved through:achieved through:

Generating increasing salesGenerating increasing sales – – increasing revenue to impact on increasing revenue to impact on overall profit levelsoverall profit levels

Use of retained profitUse of retained profit – used – used to reinvest in the businessto reinvest in the business

Sale of assetsSale of assets – can be a – can be a double edged sword –double edged sword – reduces reduces capacity?capacity?

PERSONAL SAVING-PERSONAL SAVING-

Selling more? Mind the queues.

External Sources of FinanceExternal Sources of Finance

Short Term – used to cover Short Term – used to cover fluctuations in cash flowfluctuations in cash flow

Long Term – may be paid back Long Term – may be paid back after many years or not at all!after many years or not at all!

‘‘Inorganic Growth’ – growth Inorganic Growth’ – growth generated by acquisitiongenerated by acquisition

The existence of capital markets enable firms to raise long term loans and share capital.

Short TermShort Term Bank loansBank loans – necessity of paying interest on the payment, repayment – necessity of paying interest on the payment, repayment

periods from 1 year upwards but generally no longer than 5 or 10 years periods from 1 year upwards but generally no longer than 5 or 10 years at mostat most

Overdraft facilitiesOverdraft facilities – the right to be able to withdraw funds you do not – the right to be able to withdraw funds you do not currently havecurrently have Provides flexibility for a firmProvides flexibility for a firm Interest only paid on the amount overdrawnInterest only paid on the amount overdrawn Overdraft limit – the maximum amount allowed to be drawn - the Overdraft limit – the maximum amount allowed to be drawn - the

firm does not have to use all of this limitfirm does not have to use all of this limit Trade creditTrade credit – Careful management of trade credit can help ease cash – Careful management of trade credit can help ease cash

flow – usually between 28 and 90 days to payflow – usually between 28 and 90 days to pay FactoringFactoring – the sale of debt to a specialist firm who secures payment – the sale of debt to a specialist firm who secures payment

and charges a commission for the service.and charges a commission for the service. Leasing Leasing – provides the opportunity to secure the use of capital without – provides the opportunity to secure the use of capital without

ownership – effectively a hire agreementownership – effectively a hire agreement

Long TermLong Term

Shares (Shareholders are part owners of a company)Shares (Shareholders are part owners of a company) Ordinary Shares (Equities):Ordinary Shares (Equities):

Ordinary shareholders have voting rightsOrdinary shareholders have voting rights Dividend can varyDividend can vary Last to be paid back in event of collapseLast to be paid back in event of collapse Share price varies with trade on stock exchangeShare price varies with trade on stock exchange

Preference Shares:Preference Shares: Paid before ordinary shareholdersPaid before ordinary shareholders Fixed rate of returnFixed rate of return Cumulative preference shareholders – have right to dividend carried over to next Cumulative preference shareholders – have right to dividend carried over to next

year in event of non-paymentyear in event of non-payment New Share IssuesNew Share Issues – arranged by merchant or investment banks – arranged by merchant or investment banks Rights IssueRights Issue – existing shareholders given right to buy new shares at – existing shareholders given right to buy new shares at

discounted ratediscounted rate Bonus or Scrip IssueBonus or Scrip Issue – change to the share structure – increases number – change to the share structure – increases number

of shares and reduces value but market capitalisation stays the sameof shares and reduces value but market capitalisation stays the same

Long termLong term

Loans (Represent creditors to the company – not Loans (Represent creditors to the company – not owners)owners) DebenturesDebentures – fixed rate of return, first to be paid – fixed rate of return, first to be paid Bank loans and mortgagesBank loans and mortgages – suitable for small to medium – suitable for small to medium

sized firms where property or some other asset acts as security sized firms where property or some other asset acts as security for the loanfor the loan

Merchant or Investment BanksMerchant or Investment Banks – act on behalf of clients to – act on behalf of clients to organise and underwrite raising financeorganise and underwrite raising finance

Government/EUGovernment/EU – may offer loans in certain circumstances – may offer loans in certain circumstances GrantsGrants

'Inorganic Growth''Inorganic Growth'

AcquisitionsAcquisitions The necessity of financing The necessity of financing

external inorganic growthexternal inorganic growth Merger:Merger:

firms agree to join together firms agree to join together – both may retain some – both may retain some form of identityform of identity

Takeover:Takeover: One firm secures control of One firm secures control of

the other, the firm taken the other, the firm taken over may lose its identityover may lose its identity

Safeway – subject to a £3 billion takeover by Morrisons. Securing the £3 billion necessary is a specialist job.

Business AngelsBusiness Angels

Business AngelsBusiness Angels

Individuals looking for investment Individuals looking for investment opportunitiesopportunities

Generally small sums Generally small sums up to £100,000up to £100,000

Could be an individual Could be an individual or a small groupor a small group

Generally have some say Generally have some say in the running of the companyin the running of the company

Venture CapitalVenture Capital

Venture CapitalVenture Capital

Pooling of capital in the form of limited companies – Pooling of capital in the form of limited companies – Venture Capital CompaniesVenture Capital Companies

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

May also buy out firms in administration May also buy out firms in administration who are going concernswho are going concerns

May also provide advice, contacts May also provide advice, contacts and experienceand experience

In the UK, venture capitalists have invested £50 In the UK, venture capitalists have invested £50 billion since 1983billion since 1983

CONCLUSION

THANK YOU!