Business finance

GROUP 1 REPORTERS

Dimple Ann Marie

MOHAMMAD ROSELYN JOY Villanueva
ABARQUEZ

Debt financing -
GERRYLLE VIOLA ABDULLAH
Definition of Type of Equity borrowings
source capital Capital

SHERIELYN JANE
KAYCEE ANN RICA MARIE
ARCINUE
BENEMERITO VALMEO
External short-term Loans and
Equity vs. dept
financing financing amortization
TABLE OF
CONTENTS
Capital Definition

Type of Capital

Equity

Debt Financing Borrowings

External short-term financing

Equity vs Debt Financing

Loans and Amortization

 CAPITAL

Capital is a broad term that can refer to anything that provides

value or benefit to its owners, such as a factory and its machinery,
intellectual property such as patents, or a business's or an
individual's financial assets. While money can be constructed as
capital, capital is more commonly associated with cash that is put to
work for productive or investment purposes.
Capital is a critical component for day-to-day operations and
growth. Companies generate capital through business operations,
but they can raise more capital by incurring more debt or financing
with equity. In general, capital is an important component of
running a business and financing its future growth.
 WORK TRADING
CAPITAL CAPITAL

The four major types

of capital include TYPE OF
working capital, debt,
equity, and trading
CAPITAL
capital. DEBT
CAPITAL
EQUITY
CAPITAL
 TRADING CAPITAL - Trading capital is a term used by brokerages and
other financial institutions that place a large number of trades daily.
Trading capital is the amount of money allotted to an individual or a firm
to buy and sell various securities.
EQUITY CAPITAL – Have Private and public equity will usually be structured
in the form of shares of stock in the company. The only distinction here is
that public equity is raised by listing the company's shares on a stock
exchange while private equity is raised among a closed group of investors.
WORKING CAPITAL – company's working capital is its liquid capital assets
available for fulfilling daily obligations. It is calculated through the following
two assessments:
Current Assets – Current Liabilities
Accounts Receivable + Inventory – Accounts Payable
DEBT CAPITAL – A business can acquire capital by borrowing. This is debt capital,
and it can be obtained through private or government sources. For established
companies, this most often means borrowing from banks and other financial
institutions or issuing bonds. For small businesses starting on a shoestring, sources
of capital may include friends and family, online lenders, credit card companies, and
federal loan programs.
 EQUITY
What is meant by equity?
The amount of money given to a company's shareholders if all of its
assets were sold and all of its debts were settled is known as equity.

also known as shareholders' equity or owners' equity for privately

held corporations. It is the value of the company's income less any
debts that are not a part of the acquisition in this case. The book value
of a company may also be equal to its shareholders' equity. One of the
most popular metrics used by analysts to assess the financial health
of a company is equity. The company's balance sheet is used to
calculate the equity value.
 Formula for computing the equity
Owner's equity = Assets - Liabilities
Example: Computer Assembly Warehouse

Let’s assume that Jake owns and runs a computer assembly plant in
Philippine and he wants to know his equity in the business. Jake’s
balance sheet for the previous year shows that the warehouse
premises are valued at ₱1 million, the factory equipment is valued at
₱1 million, inventory is valued at ₱800,000 and that debtors owe the
business ₱400,000. The balance sheet also indicates that Jake owes
the bank ₱500,000, creditors ₱800,000 and the wages and salaries
stand at ₱800,000.


Therefore, owner’s equity can be calculated as follows:

Owner’s equity = Assets – Liabilities

Assets = ₱1,000,000 + ₱1,000,000 + ₱800,000 + ₱400,000

- 800,000 = ₱2,400,000 million

Liabilities = ₱500,000 + ₱800,000

= ₱ 1,300,000 million

Jake’s Equity = 2,400,000 million – ₱1,300,000 million

= ₱1.1 million

Therefore, the value of Jake’s worth in the company is

1.1 million.
DEBT FINANCING -BORROWINGS

Debt financing is when you borrow

money to run your business, as opposed
to equity financing, in which you raise
money from investors who are in return
entitled to a share of the profits from your
business.
SOME EXAMPLES OF DEBT
FINANCING INCLUDE:

•Traditional bank loans

•Personal loans
•Loans from family or friends
•Government loans, including Small Business
•Administration (SBA) loans
•Peer-to-peer loans•
Home equity loans
•Lines of credit
•Credit cards
•Equipment loans
•Real estate loans
 EXTERNAL SHORT-TERM
FINANCING
- Often referred to as bridging finance usually refers to
loans mostly offered in terms of up to 12 months.That
helps the company generate cash for working of the
business and for operating expenses, which is usually for
a smaller amount.

Sources of Short-Term
Financing:
1.Trade creditors
2.Customers advances
3.Commercial banks
4.Finance companies
5.Commercial paper house
6.Personal loan companies
7.Governmental institutions
8.Factors or brokers
9.Loan mortgage banks
10.Money lender
ADVANTAGES OF SHORT
TERM FINANCING :
1.Easier to obtain
2.Lower costs
3.Flexibility
4.No sharing of control
5.Availability
6.Tax savings
7.Convenience
8.Extension of credit
DISADVANTAGES OF SHORT-
TERM FINANCING
1.Frequent maturity
2.High cost
 EQUITY VS DEBT FINANCING
To raise capital for business needs, companies primarily have two types of
financing as an option: equity financing and debt financing. Most
companies use a combination of debt and equity financing, but there are
some distinct advantages to both. Principal among them is that equity
financing carries no repayment obligation and provides extra working
capital that can be used to grow a business. Debt financing on the other
hand does not require giving up a portion of ownership.
Companies usually have a choice as to whether to seek
debt or equity financing. The choice often depends upon
which source of funding is most easily accessible for the
company, its cash flow, and how important maintaining
control of the company is to its principal owners. The debt-
to-equity ratio shows how much of a company's financing
is proportionately provided by debt and equity.
 LOANS AND
AMORTIZATION
A loan that has planned, monthly payments

that are applied to both the principle and

interest accrued is known as an amortized loan.

An amortized loan payment is one that reduces

the principal amount of the loan after paying

off the relevant interest expense for the period.

Auto, housing, and personal bank loans for

small projects or debt consolidation are

examples of common amortized loans.

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