We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byLesley Wells
Modified about 1 year ago
Financial Requirements of a New EnterpriseChapter-3 Financial Requirements of a New Enterprise Author: Alpana Trehan © 2011, Dreamtech Press :: Chapter 3
Financing a new enterpriseAn enterprise needs to determine its financing requirements, before its set up. An enterprise has two types of financial requirements: Fixed capital Helps in purchasing the fixed assets such as land, buildings and furniture Also called as long term capital Amount depends on the nature and size of the business Generates income and profits in long term Working Capital Implies the amount of money required for the day-to-day management of the business Covers expenses on raw materials, wages and salaries, advertising, rent, fuel, electricity and water Also called as revolving capital or circulating capital © 2011, Dreamtech Press :: Chapter 3
Financial Requirements on the Basis of Period of UseLong-Term Capital Refers to the capital required for a period of five years or more. Helps to finance the fixed capital and the permanent part of the working capital. Raised through various sources, such as by issuing shares and debentures and taking loans from financial institutions. Medium-Term Capital Refers to the capital required for a period of two to five years. Performs various activities, such as renovation of buildings, expenditure on advertising, and modernization of machinery. Raised through various sources, such as by issuing shares and debentures and reinvestment of profits. Short-Term Capital Refers to the capital required for a period of less than a year. Helps to finance the current assets and meet day-to-day expenses. Raised through various sources, such as banks, trade credit, and installment credit. © 2011, Dreamtech Press :: Chapter 3
© 2011, Dreamtech Press :: Chapter 3Fixed cost The fixed cost includes the expenses of an enterprise that do not change with change in the levels of production. The following are the fixed cost of an enterprise: Land and Site Development Construction Cost Plant and Machinery Technical Knowhow Utility Cost Miscellaneous Fixed Assets © 2011, Dreamtech Press :: Chapter 3
Land and Site DevelopmentPurchase price of land Legal and registration charges Leveling of land Laying of internal and approach roads Boundary wall / fencing of land Gates and site office Tube well and electrification for project implementation Any other expense of similar nature © 2011, Dreamtech Press :: Chapter 3
Construction cost Factory buildings Production shed Boiler HouseTransformer room/ generator room Workshop Laboratory Non-factory buildings Ware house Stores Security house Workers’ rest room Parking Time office/ excise room Administrative block Essential quarters for workers Canteen © 2011, Dreamtech Press :: Chapter 3
Plant and Machinery Basic cost of equipmentExcise/ custom duty and sales tax Transshipment cost (from vendor to site) and insurance during transportation Erection and foundation cost Piping cost © 2011, Dreamtech Press :: Chapter 3
Basic cost of technology development or purchase Technical Knowhow Basic cost of technology development or purchase Training cost for employees Royalty paid (if lump sum) © 2011, Dreamtech Press :: Chapter 3
Generator/ TransformerUtility Cost Boiler Compressor Generator/ Transformer Underground / overhead water tank Effluent treatment plant © 2011, Dreamtech Press :: Chapter 3
determinants of working capitalWork in Progress Finished Goods Inventory Receivables Raw Material Inventory © 2011, Dreamtech Press :: Chapter 3
© 2011, Dreamtech Press :: Chapter 3Sources of finance Long-term Finance Medium-term Finance Short-term Finance © 2011, Dreamtech Press :: Chapter 3
Sources of Long-Term FinancingA method of raising long-term funds by selling the common and preferred stock of the enterprise to the investors Equity Financing An agreement between a debenture holder and the enterprise, which acknowledges that the enterprise would repay the debt at a specified date to debenture holders Debt Financing The long-term loans that are raised for the duration of 3 to 10 years from financial institutions Term Loans © 2011, Dreamtech Press :: Chapter 3
Sources of medium-Term FinancingAn agreement between the owner of assets, called the lessor, and the user of assets, called the lessee Lease Finance Funds and loans raised from general public, employees, and other similar kind of depositors Public Deposits The accumulated profit for future investments, which can be short-term or long-term in nature Retained Earnings An agreement between a hiree (the owner of assets) and a hirer (the user of the assets) Hire Purchase © 2011, Dreamtech Press :: Chapter 3
Sources of short-Term FinancingAn arrangement in which the supplier allows the buyer to pay for goods and services at a later date in future Trade Credit The art of payment made in advance by the customer to the enterprise for the procurement of goods and services in the future Customer Advances The borrowed amount is paid in equal installments with interest Installment Credit The amount of money granted by the bank at a specified rate of interest for a fixed period of time Bank Loan An arrangement made by the bank for the clients to withdraw cash exceeding their account limit Cash Credit An instrument used by the enterprise with high credit rating to raise money from the market Commercial Papers A promissory note issued by the bank to the investors for depositing funds in the bank for a fixed period of time Certificate of Deposits A document in which an individual asks the recipient to make payment for goods and services received to a third party at a future date Bills of Exchange A temporary arrangement with the bank that allows the organization to overdraw from its current deposit account with the bank up to a certain limit Bank Overdraft © 2011, Dreamtech Press :: Chapter 3
Institutions Providing Financial AssistanceReserve Bank of India State Bank of India Bank of Baroda Andhra Bank Small Industries Development Organization (SIDO) National Small Industries Corporation Ltd (NSIC) © 2011, Dreamtech Press :: Chapter 3
Venture Capital FundingIt is a source of finance for newly established small and medium enterprises willing to raise funds. Independently managed, dedicated pools of capital that focus on equity-linked investments in privately held, high-growth companies Gompers and Lerner (1999: 11) Methods of Venture Funding in India: Equity Conditional Loans Income Note © 2011, Dreamtech Press :: Chapter 3
Venture Capital Funding ProcessInvolves interaction between venture capitalists and entrepreneurs regarding the investments in business proposals Deal Initiation Involves an initial screening of all the projects on the basis of certain criteria, such as the size of investment, geographical location, and stage of financing Preliminary Screening Includes activities that are associated with evaluating an investment proposal Due Diligence Involves negotiation between the venture capitalist and the entrepreneur regarding the terms and conditions of the deal Deal Structuring Indicate the activities performed by venture capitalist after finalizing and completing the deal with the entrepreneur Post Investment Activities Refers to a stage when the venture capitalist wishes to exit from the business Exiting © 2011, Dreamtech Press :: Chapter 3
© 2011, Dreamtech Press :: Chapter 3recap Finance is prerequisite for mobilizing the resources of an enterprise. Financing a new enterprise essentially involves two things, namely, estimating the funds/capital requirement and deciding sources. Estimating financial requirements for a startup enterprise involves determining the total amount of capital required for various needs of the business and deciding the sources and methods to raise it. Venture capital is an important source of finance for newly established small and medium enterprises willing to raise funds. © 2011, Dreamtech Press :: Chapter 3
Sources of finance Long term finance Short term finance.
Source of finance All businesses need money to finance business activity. This can be for the initial setting up of the business, for its day-to-day running.
3.1 Sources of Finance Topic 3: Finance and Accounts.
Chapter Goals... Explain the role of finance for businesses in terms of capital expenditure and revenue expenditure Explore internal finance options –
2011 PK Mwangi Global Consulting Financing your business The key to acquiring funding will depend on the structuring and presentation of the business plan.
Financing Your Business
19 Business Finance.
Obtain Finance. Types Finance Secured Finance – Finance is given in return for security over an asset – The security is a guarantee that lender has first.
Sources of Finance Manoj Kumar kumaratvuc.wordpress.com.
3.1 Sources of Finance Chapter 18 Part 1.
Sources of Business Finance
Part 6 Financing the Enterprise © 2015 McGraw-Hill Education.
FINANCING YOUR BUSINESS Business Management. Today’s Lesson We will explore differences among various sources of capital. What are the two methods for.
FINANCIAL MANAGEMENT Bus The importance of finance and financial management to an organization 2. The responsibilities of financial managers. 3.
Level 1 Business Studies
3.1 Sources of Financing Chapter 18 Part 2.
Sources of Finance Sources of Finance can be either: Internal External.
FINANCE and Accounts 3.1 SOURCES OF FINANCE Page SOURCES OF FINANCE Page 161.
Different ways a business can obtain money
THE NEED FOR CAPITAL * START-UP OR VENTURE CAPITAL * WORKING CAPITAL * INVESTMENT CAPITAL.
Business Studies Accounts & Finance An Introduction.
WEEK 14: FINANCIAL MANAGEMENT -2 BUSN 102 – Özge Can.
Chapter # 4 Instruments traded on Financial Markets.
Lim Sei cK. Matching exercise to test your understanding of the various sources of finance.
STARTER Does anyone know: – Why an overdraft would not be used to fund a long-term project? – Why the government may offer a grant to a large organisation.
Loans and Advances The term ‘loan’ refers to the amount borrowed by one person from another The amount is in the nature of loan and refers to the sum paid.
3.1 Source of finance. Introduction Businesses need money to finance business activity. (setting up the business or for its day-to-day running or expansion.
Chapter 17 Financing a Business Methods of Obtaining Capital Selecting a Method of Obtaining Capital Sources of Outside Capital.
* WHAT’S FINANCE? The Role of Finance and Financial Managers * LG1
Chapter 7 Obtaining the Right Financing for Your Business University of Bahrain College of Business Administration MGT 239: Small Business MGT239 1.
Introduction to Business Chapter 6: Sources of Finances.
Business Finance. Learning Objectives To understand the concept of business finance. What is importance of finance in operation of business? What are.
FINANCING THE VENTURE. Financing the Venture Capital is any form of wealth employed to produce more wealth. Three forms of capital are commonly identified:
Accounts and Finance Section 3
Financing the Small Business Dr. Muslim Suardi, MSi., Apt. School of Pharmacy, Faculty of Sciences UNIVERSITY OF ANDALAS.
1. Think about it…. “A business that makes nothing but money is a poor kind of business.” Henry Ford ( ) Was he crazy? What does he mean by this?
Unit (40) The need for funds : -Firms need money to get started. -If successful, firms will earn money from sales. -Business is a continuous activity and.
Business in Action 6e Bovée/Thill Financial Management Chapter 18.
Financing. Definitions ASSETS- things that are owned and have monetary value. ASSETS- things that are owned and have monetary value. CURRENT ASSETS –
ACCOUNTING BASIC TERMS. ASSETS These are economic resources of an enterprise that can be usefully expressed in monetary terms. Assets are things of value.
SOURCES OF FINANCE.
Part 4 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing. All rights reserved. All rights reserved. Finding Sources.
Chapter Twenty Mastering Financial Management. The Need for Financing Short-term financing –Money that will be used for one year or less Long-term financing.
FINANCE TYPES OF FINANCE ACCOUNTING METHODS IGCSE Business Studies Term 1.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 3 | Slide 1 Financial Management Chapter16.
FHF Ferrell Hirt Ferrell M: Business 2 nd Edition.
© ZigZag Education, 2016 Photocopiable/digital resources may only be copied by the purchasing institution on a single site and for their own use Aaron.
© 2017 SlidePlayer.com Inc. All rights reserved.