Obtaining Funds: Sources of Long Term and Short Term Finance
Overview
What sources of finance are available to managers, and what factors must they consider in their financing strategies? This chapter addresses these questions and looks at the types of externally available long-term and short-term finance that managers can choose from. It also examines the concept of 'internal' or 'internally generated funds' and uses your knowledge of accounting and accounting terminology to explain why it is considered to be a source of finance.
Learning objectives
After completing the work for this chapter you should be able to:
- Describe equity finance and its share capital and retained profits components
- Explain the various forms of share issues (share floats)
- Describe debt and the main forms of long-term and short-term debt finance
- Explain hybrid forms of debt and equity
- Explain a financial lease and distinguish it from an operating lease
- Describe sale and leaseback arrangements
- Explain how gearing affects the long-term financing decision
- Explain why trade credit is of no cost to a business
- Outline the characteristics of bills and promissory notes
- Explain why retained profits and depreciation are considered to be sources of internally provided finance
- Define the new terms and concepts identified in this chapter
- Prepare a trial balance, describe its uses and limitations, and use it to prepare a set of annual financial reports.
- Define the other new terms identified in the Key Terms and Concepts list.
