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    7 Sources of Finance For A Firm

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    Darshana
    The document discusses seven sources of finance for firms: 1) Long-term sources for acquiring fixed assets like land, plant, and machinery with repayment periods of 5-10 years. 2) Medium-term sources for expenditures with benefits lasting over one accounting period, like advertising. 3) Short-term sources for working capital and day-to-day expenses with maturity of one year or less. 4) Owned capital like equity, retained earnings, and preference shares which are permanent but give control rights. 5) Borrowed capital like debentures, loans, deposits which provide fixed interest payments but must be repaid. 6) Internal sources from profits plowed back or depreci

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    7 Sources of Finance For A Firm

    Uploaded by

    Darshana
    42 views3 pages
    The document discusses seven sources of finance for firms: 1) Long-term sources for acquiring fixed assets like land, plant, and machinery with repayment periods of 5-10 years. 2) Medium-term sources for expenditures with benefits lasting over one accounting period, like advertising. 3) Short-term sources for working capital and day-to-day expenses with maturity of one year or less. 4) Owned capital like equity, retained earnings, and preference shares which are permanent but give control rights. 5) Borrowed capital like debentures, loans, deposits which provide fixed interest payments but must be repaid. 6) Internal sources from profits plowed back or depreci

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    7 Sources of Finance for a Firm

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    The document discusses seven sources of finance for firms: 1) Long-term sources for acquiring fixed assets like land, plant, and machinery with repayment periods of 5-10 years. 2) Medium-term sources for expenditures with benefits lasting over one accounting period, like advertising. 3) Short-term sources for working capital and day-to-day expenses with maturity of one year or less. 4) Owned capital like equity, retained earnings, and preference shares which are permanent but give control rights. 5) Borrowed capital like debentures, loans, deposits which provide fixed interest payments but must be repaid. 6) Internal sources from profits plowed back or depreci

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    42 views3 pages

    7 Sources of Finance For A Firm

    Uploaded by

    Darshana
    The document discusses seven sources of finance for firms: 1) Long-term sources for acquiring fixed assets like land, plant, and machinery with repayment periods of 5-10 years. 2) Medium-term sources for expenditures with benefits lasting over one accounting period, like advertising. 3) Short-term sources for working capital and day-to-day expenses with maturity of one year or less. 4) Owned capital like equity, retained earnings, and preference shares which are permanent but give control rights. 5) Borrowed capital like debentures, loans, deposits which provide fixed interest payments but must be repaid. 6) Internal sources from profits plowed back or depreci

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    7 Sources of Finance for a Firm


    Article shared by : Ms.Trisha 1

    Introduction
    Finance is significant for business because it cannot carry out its operations even for a single day
    without finance. It is therefore important to search the sources from where funds can be
    collected. The selection of source depends upon the amount of funds required, nature of
    business, repayment period, debt-equity mix, etc. The selection of source also depends upon the
    purposes for which funds are needed.

    Funds required for acquiring machine, land & building, etc., should be procured from such
    sources, the tenure of which must be between 5 and 10 years. Funds required for more than 1
    year but less than 5 years should be financed from medium-term sources. Funds required for
    meeting day-to-day expenses should be acquired from short-term sources.

    A firm can obtain funds from a variety of sources (see Figure 3.1), which may
    be classified as follows:
    i. Long-term Sources:
    A firm needs funds to purchase fixed assets such as land, plant & machinery, furniture, etc.
    These assets should be purchased from those funds which have a longer maturity repayment
    period. The capital required for purchasing these assets is known as fixed capital. So funds
    required for fixed capital must be financed using long-term sources of finance.

    1
    https://www.yourarticlelibrary.com/financial-management/7-sources-of-finance-for-a-firm/43831

    Finance (BBA) Blesson James Christ College - Pune


    2|Page

    ii. Medium-term Sources:


    Funds required for say, a heavy advertisement campaign, the benefit of which lasts for more than
    one accounting period, should be financed through medium-term sources of finance. In other
    words expenditure that results in deferred revenue should be financed through medium-term
    sources.

    iii. Short-term Sources:


    Funds required for meeting day-to-day expenses, i.e. revenue expenditure or working capital
    should be financed from short-term sources whose maturity period is one year or less.

    Finance (BBA) Blesson James Christ College - Pune


    3|Page

    iv. Owned Capital:


    Owned capital represents equity capital, retained earnings and preference capital. Equity share
    has a perpetual life and are entitled to the residual income of the firm but the equity shareholders
    have the right to control the affairs of the business because they enjoy the voting rights.

    v. Borrowed Capital:
    Borrowed capital represents debentures, term loans, public deposits, borrowings from bank, etc.
    These are contractual in nature. They are entitled to get a fixed rate of interest irrespective of
    profit and are to be repaid on a fixed date.

    vi. Internal Sources:


    If the funds are created internally, i.e. without using debt, such sources can be termed as internal
    sources. Examples of such could be: Ploughing back of profits, provision for depreciation, etc.

    vii. External Sources:


    If funds are re-used through the sources which create some obligation to the firm, such sources
    can be termed as external sources, e.g. lease financing, hire purchase, etc.

    Finance (BBA) Blesson James Christ College - Pune

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