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Introduction to Business Chapter 6: Sources of Finances.

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Presentation on theme: "Introduction to Business Chapter 6: Sources of Finances."— Presentation transcript:

1 Introduction to Business Chapter 6: Sources of Finances

2 Introduction Lack of knowledge in Financial Matters will leads to cash-flow problem and the inability of the business to pay its creditors.

3 Function of Finance Funds are needed because: – Cash requirement for the daily operation – Raw materials and goods in stock costs money to be kept – No money will be available until the goods is sold and the debt is being collected – The need to service bank loans – The need to pay dividend to shareholders – The need to finance the purchase of machinery and equipment – Transport and packaging of goods

4 The need of fund (4 main categories) Account Payable – An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. – refers to a business department or division that is responsible for making payments owed by the company to suppliers and other creditors. Account Receivable – Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for

5 The need of fund (4 main categories) Inventories – The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Capital expenditure – Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.

6 Short-Term Finance Trade Credit – is the credit extended to you by suppliers who let you buy now and pay later. Bank Overdraft – A bank overdraft is when someone is able to spend more than what is actually in their bank account.

7 Short Term Finances Bank Loans – A sum of money lent at interest. Debt Factoring – The sale of a business' invoices to a third party. Sale of Assets – whether the seller gives the buyer control over the assets transferred, and also any residual interest, without recourse to the seller.

8 Medium and Long Term Finance Debt Financing – Medium and long term bank loan – Corporate Bond Issue Equity Financing – The act of raising money for company activities by selling common or preferred stock to individual or institutional investors.

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