Rubie A.

Lagare
October 29, 2021
CBET 22-102E

1. What are the sources of financing in business?

Sources of Financing are equity, debt, retained earnings, debentures term

loans, working capital loans, letter of credit, euro issue, venture funding,
etc. In the case of the business firm: In equity financing, the equity
partners or shareholders invest funds. In debt financing, the equity
partners or shareholders invest funds, and the firm borrows money from
the lenders. The equity partners or shareholders invest funds in retained
earnings, and the firm retains part of its profits. In term loans, the debtor
repays the lender over the life of the term loan. In debentures term loans,
the debtor repays the lender over the life of the debentures. In working
capital loans, the firm borrows money and uses it as liquid assets to fund
day-to-day business operations. In letter of credit, the debtor posts a
“letter of credit” to the lender. In venture funding, the debtor and the
venture capitalist invest, and the debtor repay the venture capitalist. In
the euro issue, the debtor repays the lender in euro. In venture funding,
the debtor and the venture capitalist invest, and the debtor repays the
venture capitalist.

2. Differentiate fixed capital and working capital.

Working capital or Net working capital is defined as current assets less
current liabilities. Working capital helps to maintain the current
operations of a business or organization by enabling the company to
continue with its current operations. At the same time, Fixed capital is
the amount of money that is invested in a business. It is a long-term
investment that is used to increase the value of the business. It is usually
not repaid and is considered to be a commitment to the business.

 3. What are equity shares?

Equity shares are the shares issued to shareholders in a company.
Equity shares are issued as a form of ownership in a company and
can be traded on stock exchanges. Equity shares are considered a
type of ownership in a company and not a form of debt. Equity
shares may provide a company with additional benefits such as
voting rights and dividends. In some circumstances, a company may
issue both debt and equity shares simultaneously. The capital
provided to a company by equity shares is considered equity
capital, and debt is considered debt capital.

4. Discuss the advantages and disadvantages of equity financing

One significant advantage to equity financing is that it increases
the efficiency of the business. It allows the business to obtain the
capital that they need and use it to grow further. Also, equity
finance is not a risk for the business but a risk for the investors.
The second main advantage of equity financing is that it is a proven
method that has worked in the past. This is a vital aspect because if
this method does not work, it could mean the end of the business.
Another advantage of equity financing is that it allows the business
to grow and develop. The disadvantage of equity financing is that it
does not provide a return to the investors. In other words, it does
not provide any easy way to make money. This disadvantage exists
because the stock market is unpredictable, and as a result, it cannot
be easy to know what the return on equity will be.