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A study on the various sources of finance

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  1. Introduction
  2. Several reasons to study finance
  3. Different sources of long term funds
    1. Equity share capital
    2. Rights of shareholders
    3. Advantages of equity share financing
    4. Limitations of equity share financing
    5. Preference share capital
    6. Advantages and limitations of preference share financing
    7. Rights offering
    8. Warrants
    9. Long term debt securities
    10. Advantages and disadvantages of debuntures
  4. Types of debt instruments
  5. Hire purchase
    1. Modulus operandi of hire purchase transaction
    2. Parties to hire purchase contract
    3. Hire purchase and installment payment
  6. Leasing
    1. Essential elements
    2. Types of leasing

Finance is the study of how individuals, institutions, and other businesses acquire, spend, and manage money and other financial resources. Finance also can be defined in terms of the macro economy as well as the business firm and individual citizen level. Macro finance is the study of how financial intermediaries, financial markets, and policy makers interact and operate within U.S. and global financial systems.

Business finance is the study of financial planning, asset management, and fund raising by businesses and financial institutions. Personal finance is the study of how individuals prepare for financial emergencies, protect against premature death and the loss of property, and accumulate wealth overtime.

Finance has its origin in economics and accounting. Economists use a supply and demand framework to explain how the prices and quantities of goods and services are determined in a free market economic system. Accountants provide the record keeping mechanism for showing ownership of the financial instruments used in the flow financial funds between savers and borrowers.

[...] If the company does not earn a rate of return equal to the cost of debenture funds, then the financial leverage created by the issue of debt financing will have magnified adverse effect on the EPS. A debt issue is also subject to the conditions prevailing in the capital markets, particularly when the required rate of return on new debt instruments is too high. This may also cause the company to delay the debt financing and/or resort to the equity financing. [...]

[...] The usual sources of finance for a project are: Equity capital, term loan, deferred payment, unsecured loans from promoters and internal accruals in case of an existing unit. Thus we see that firms generally in case of paucity of funds to purchase some asset, procuring some facility etc approach various financial institutions. These financial institutions provide different facilities to them to help them buy those assets by providing credit. Thus they help companies make use of the asset in return for an interest component added to the principal. [...]

[...] First, in contrast to operating lease, financial lease involves a relatively longer- term commitment on the part of lessee. They are non-cancelable, in the sense that the lessee is contractually obliged to make lease payments during the entire period specified in the contract. Thus this form of lease entails to the lessor lower risk. Second, the financial lease is less expensive to operating lease from the point of view of the lessor as the maintenance and service cost is generally born by the lessee. [...]

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