FINANCING OF ENTERPRISE
Need financing for Enterprise/business
The product is the outcome of five factor (land, labor, capital, resource, business or organization ) .these factor depend on each other bringing the five factor together is very necessary to achieve the desired result of production
For every enterprise there need for the capital for start a enterprise it's the finance which allow the enterprise to bring together the land, labor, machine, raw material.To achieve the desired result .Finance in an enterprise weather large or small is a crucial element for the growth of the business
(Business should gather the required amount before starting or deciding to operate for the first time )
Financial planning is a future forecast of the enterprise which done in the beginning
- How much money is needed at the start / for operation of business
- Financial institutes which lend money and the source where money can be raised
- When dose the money needed for the operation with in the time limit
- Financial expenditure and the reserve the business need
- (operation/working cost) should be for day to day operation
- profit margin
In every business /enterprise capital is arranged by two source INTERNAL & EXTERNAL
Internal source is the own money used in the business owner money know as equity it is for a small enterprise
External source is the one where money borrowed from finical institutes and commercial bank
TWO WAY OF CLASSIFICATION OF FINANCIAL NEEDS
(a) fixed capital
(b) working capital
On the basis of period
(a) long term capital
(b) shot term capital
Fixed capital :
The money invested in the building, machinery, land, equipment, furniture. There are considers fixed asset given a fixe value for period of time
The asset may be deprecation or appreciate over the time LAND , BUILDING are appreciation type of asset there value grow over the period of time VEHICLE, MACHINERY, EQUIPMENTS. There value decrees over the period of time
Working capital :
The money invested in current asset or durable asset like Material, Finished good's, Debtor's .is know as working capital
The money required to operate day by day business is called working capital (working capital have high liquidity)
Long term capital :
Long term borrowing is which happens more than a year or five year the borrowing from Financial institutes, Commercial bank the interest rate are fixed but generally low due to the long term period
This kind of borrowing is suitable for the big operation or big purchase for the business
example; aircraft can't be bought by the company so it borrow money from other for long term to purchase the plane and operate the plane as it's own
Shot term capital:
A shot term borrowing is a borrowing with in the year or for six month it a simple way of borrowing money from Commercial bank or from the money lender for the small purpose of the business the short term borrowing
In shot term borrowing the interest rate are high due to short time period
The theory of financial management suggest that in order to ensure sound financial health of a business
(shot term finance /fund should be utilized for acquiring current asset ,for example raw material, finished goods, semi finished goods , debtors) because they keep changing the shape
They have high liquidity and can be convert into cash with low transaction cost
(long term finance should be used to acquire assets which are of long nature these are commonly refer to fixed asset land, building, heavy machine)
SOURCE OF FINANCE :
Every business need have the fund to operate and the idea of getting those fund a small scale business think way different than large scale business due to this small scale business depend on its own fund and the large scale business depend on outside side source due to its huge operation and working cost
(a) Internal source
(b) External source
INTERNAL SOURCE OF FINANCE :
The internal source if fund is also considers a owner fund which raise by the owner on his own behalf and capacity rather than using business to raise fund the internal source is a borrowed money from other person borrowing money from personal loan and converting assets in to funds
internal source of fund is enterprise internal fund which is used to business purpose this type of fund scope is limited where the only preferable for the small scale or sole business concerns
EXTERNAL SOURCE OF FINANCE :
In short term fund raised from other than internal source are from external source there the money raised on the based on business .When a privet company want to go public they raise fund from public through distributing company ownership through stock and bond it is the best example for the external source of fund
Internal source is the own money used in the business owner money know as equity it is for a small enterprise
External source is the one where money borrowed from finical institutes and commercial bank
TWO WAY OF CLASSIFICATION OF FINANCIAL NEEDS
(a) fixed capital
(b) working capital
On the basis of period
(a) long term capital
(b) shot term capital
Fixed capital :
The money invested in the building, machinery, land, equipment, furniture. There are considers fixed asset given a fixe value for period of time
The asset may be deprecation or appreciate over the time LAND , BUILDING are appreciation type of asset there value grow over the period of time VEHICLE, MACHINERY, EQUIPMENTS. There value decrees over the period of time
Working capital :
The money invested in current asset or durable asset like Material, Finished good's, Debtor's .is know as working capital
The money required to operate day by day business is called working capital (working capital have high liquidity)
Long term capital :
Long term borrowing is which happens more than a year or five year the borrowing from Financial institutes, Commercial bank the interest rate are fixed but generally low due to the long term period
This kind of borrowing is suitable for the big operation or big purchase for the business
example; aircraft can't be bought by the company so it borrow money from other for long term to purchase the plane and operate the plane as it's own
Shot term capital:
A shot term borrowing is a borrowing with in the year or for six month it a simple way of borrowing money from Commercial bank or from the money lender for the small purpose of the business the short term borrowing
In shot term borrowing the interest rate are high due to short time period
The theory of financial management suggest that in order to ensure sound financial health of a business
(shot term finance /fund should be utilized for acquiring current asset ,for example raw material, finished goods, semi finished goods , debtors) because they keep changing the shape
They have high liquidity and can be convert into cash with low transaction cost
(long term finance should be used to acquire assets which are of long nature these are commonly refer to fixed asset land, building, heavy machine)
SOURCE OF FINANCE :
Every business need have the fund to operate and the idea of getting those fund a small scale business think way different than large scale business due to this small scale business depend on its own fund and the large scale business depend on outside side source due to its huge operation and working cost
(a) Internal source
(b) External source
INTERNAL SOURCE OF FINANCE :
The internal source if fund is also considers a owner fund which raise by the owner on his own behalf and capacity rather than using business to raise fund the internal source is a borrowed money from other person borrowing money from personal loan and converting assets in to funds
internal source of fund is enterprise internal fund which is used to business purpose this type of fund scope is limited where the only preferable for the small scale or sole business concerns
EXTERNAL SOURCE OF FINANCE :
In short term fund raised from other than internal source are from external source there the money raised on the based on business .When a privet company want to go public they raise fund from public through distributing company ownership through stock and bond it is the best example for the external source of fund
- borrowing from financial institutes for working capital purpose
- credit facility from commercial bank
- long term loan from financial sector
- borrowing from money market
