sources of fund
TRANSCRIPT
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Sources
of
Funds
Presented by:
Anupam Harne (8116)
Prasun Kumar Khan (8161)
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Why would a Business needFinance?
New Project
Expansion
Diversification
Modernization
Merger
Acquisition
Leveraged Buy Out
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}
MergerTwo or more companies combine into one, agree to go
forward as a single new company rather than remain
separately owned and operated.
Ex: Arcelor-Mittal merger.
}Acquisition
When one company takes over another one and clearly
established itself as the new owner, the purchase is called an
Acquisition.
Ex: Tata-Corus acquisition
} Leveraged Buy Out
Acquisition of a company by another in which the acquisition
is substantially financed through debt.
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Factors affecting Selection of
Sources of Finance
}Companys financial strategy
} Leverage planned by the Company
} Financial Leverage
}Operating Leverage
} Financial conditions in the economy
} Risk profile of the Company & Industry}Aggressive profile
}Conservative profile
}Mixed profile
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Classification of Financing
} Based upon the duration
} Long-term Finance
}Medium-term Finance
} Short-term Finance
} Based upon the source
} Internal Financing
} External Financing
Sources of Funds
Picture ofMoney Pot
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Internal Financing
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Sources of Funds
External Financing
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Short-term Financing
Short-termFinancing
Bank Loans
Trade Credit
BankOverdraft
Hire-Purchase/
Leasing
Factoring
CommercialPapers
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S ur s f Fu ds
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EQUITY FINANCE DIAGRAMCAPITALNEEDS
TIME
Seed Start-up Early Growth Sustained Growth
High Risk
Low Risk
Friends,
Family &
Fools
Business Angels
Formal VentureCapital
IPO
Growth
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Internal Financing} Sales/Revenue:
Generating cash by increasing Sales to customers
} Retained Earnings: Whole or a part of Profit earned is reinvested in the
business.
} Sale of Assets:
Disposal (sale) of any surplus assets no longer
needed
Assets sold and then leased back to free up heavy
amount of capital in short term
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Internal Financing}Working Capital Management:
Reductions in amount of stock held by business
Money loaned from trade suppliers by extended
credit
Reducing the credit period given to Debtors and
recollecting funds from them.
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Equity}Ordinary Shares (Equities):
Ordinary shareholders have voting rights
Dividend can vary
Last to be paid back in event of collapse Share price varies with trade on stock exchange
} Preference Shares:
Paid before ordinary shareholders
Fixed rate of return
Cumulative preference shareholders have right to
dividend carried over to next year in event of non-
payment
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}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
Market Capitalisation stays the same
Equity
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Debentures
}Debentures are Debt securities
}Debentures holders have no right to voteat the Board meetings of the companies.
} Right to be paid back prior to Equity
holders in case of company being wound
up
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Venture Capital} Early stage financing of new & young enterprises.
} Features:
Equity participation
Long term investment
Participation in management
} Stages in venture capital financing
Early stage financing
Expansion financing
Acquisition/buyout financing growth
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Process of venture capitalfinancing
} Deal origination
} Screening
} Evaluation (due diligence)
} Risk analysis
} Deal structuring
} Post-investment activity
} Exit plan
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Commercial Papers (CP)
} one of the non-bank sources of working capital
finance
} a Money Market instrument.
} regulated by the directions of the Reserve Bank of
India.
} Issued for a minimum period of 3 months and
maximum of 1 year
} Issued in denominations of ` 5 lakhs. But the
minimum lot of investment is ` 25 lakhs per investor.
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Bank Overdraft
} Easy to get
} More Flexibility
} Expensive mode of Finance
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Factoring
} A factor buys up the receivable from the seller.
} provides immediate finance to the seller in
consideration of assigning the receivable to him.
} The factor makes the conversion of receivables
into cash possible.
} Risk of the debt going bad is passed on to the
factor.
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Grants
} Specific Conditions
Location
Size
Sector of industry
} Rigid conditions across the board
} Usually relatively small amounts
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Business Angels} Business Angel = private investor who might invest
their own money in your business.
} Angel Network = organisation that links suitable
businesses to its membership of
Angel investors
} High Capital Returns for risks involved
} Often retired entrepreneurs, who are always looking
for new investment opportunities to increase their own
wealth
Sources of Funds
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Long Term FinancingSource
Equity
Ordinary Shares
Preference Shares
Bank Loans
Debentures
Hire-Purchase
Leasing
Use
Fixed Asset
Capital Expenditure
Land
Building
Plant
Equipment
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Short Term Financing
Source
Bank Loans
Bank Overdrafts
Trade Credit
Factoring
Use
Working Capital
Debtors
Stocks
Sources of Funds