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By: CHRISTINE C. ROSALES
Is a necessary factor of production and it has a cost. Is the amount of cash and other assets owned by a business. These business assets include accounts receivable, equipment and land/buildings of the business. Can also represent the accumulated wealth of a business, represented by its assets less liabilities.
Cash or goods used to generate income either by investing in a business or a different income property. .CAPITAL Can also mean stock or ownership in a company.
Seasonal businesses that must build inventories in anticipation of selling requirements and will not collect receivables until after the selling season often need short-term financing for the interim. Contractors with substantial work-in-process inventories often need short-term financing until . SHORT-TERM CAPITAL is most common for assets that turn over quickly such as accounts receivable or inventories.CLASSIFICATION OF CAPITAL 1.
Wholesalers and manufacturers with a major portion of their assets tied up in inventories and/or receivables also require shortterm financing in anticipation of payments from customers. .payment is received.
CLASSIFICATION OF CAPITAL LONG-TERM CAPITAL is more often associated with the need for fixed assets such as property. plant. . and equipment where the assets will be used in the business for several years. It is also a practical alternative in many situations where short-term financing requirements recur on a regular basis.
HOW THE NEED FOR CAPITAL ARISES Sales growth requires inventories to be built to support the higher sales level Sales growth creates a larger volume of accounts receivable Growth requires the business to carry larger cash balances in order to meet its current obligations to employees. trade creditors and other. Expansion .
Seasonal factors Local or national economic conditions Failure to retain sufficient earnings .Cost savings opportunities such as equipment purchases that will lower production cost or reduce operating expenses.
company. . or other organization. Are also known as liabilities.SOURCES OF CAPITAL 1. DEBT any money owed to an individual. It is an obligation to repay an amount you owe.
Has agreed to lend you money but has taken no security interest or collateral in exchange of loan. .TYPES OF DEBT 1. The most common types of unsecured debts include credit card charges. UNSECURED DEBT Are not backed up by any tangible asset such as a house or car. medical charges and personal loans.
Someone who borrowed money from and in exchange for the loan they gave some type of collateral to secure the loan.2. . SECURED DEBT Are tied to an asset.
Public sources of debt financing include a number of loan programs provided by the state and federal governments to support small businesses. insurance companies and leasing companies. banks. credit unions. consumer finance companies. .SOURCES OF DEBT Private sources of debt financing include friends and relatives.
EFFECTS OF DEBT Debt can grow beyond the ability to pay Bankruptcies Loss of asset .
is not repaid to the investors in the normal course of business. It represents the risk capital staked by the owners through purchase of a company¶s common stock (ordinary shares). . in contrast to debt. EQUITY Invested money that.SOURCES OF CAPITAL 2.
Represents portion of corporate ownership. preferred shares and equity-linked financial derivatives and futures . Equity products include common stocks.
Fools. Successful entrepreneurs .SOURCES OF EQUITY 1. Employee ownership 3. Family and friends 2.
TYPES OF EQUITY Equity Loan This extends an ownership position to induce the loan or may be originally a note (debt) with an option to convert from debt to equity. Seed Financing Generally used by a business in the startup .
and sound financial analysis.phase with no operating history. the management team. a strong marketing plan. This loan typically takes the form of convertible bond. This kind of investment depends heavily on a business plan. 1st Round Financing For a company getting ready to go to market. .
or is looking to go public. Venture capital will be used to support the IPO. . Mezzanine Financing Company is ready for an Initial Public Offering (IPO).2nd Round Financing Company is achieving early stage maturity and is looking for a merger or acquisition.
Later Stage Financing Company is now mature and is in need of funding for expansion either in facilities or product lines. Their financial state should be profitable or at least not losing money. .
M & A Financing Two companies combine resources and if one survives it is the acquirer. . If both survive then there is a merger.
is a well=prepared business plan that documents how the funds will be used. secured and paid back!´ END .VALUE OF EQUITY CAPITAL IN: In Your Personal Life In Business ³ An absolute µmust¶ before approaching any source of capital.
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