Long term sources of funds

BY : HAJRA HAFEEZ
What Is the need of funds?
 No business can live without funds throughout the life of a business, money is
needed continuously firms raise money mainly to meet the following three types
of need
Agenda

 To start a business as initial expenditure

 To fund continuous business activities and money flowing
 To expand the business
Source of fuds
 In general a business may have two major sources of funds which are needed for
its business operations. They are
1. Internal sources of funds
2. External sources of funds
Internal source
 Profit :The after tax profit earned and retained by a business which is an important
and inexpensive source of finance for example the retained earning of the
business, a large part of finance is funded from profit
 Depreciation : the financial provision for the replacement of worn out machinery
and equipment. Nearly all business use depreciation as a source of funds
 Sales of assets :the activity that a business sells off assets to raise funds for the
business when a business can not raise finance from the banks or other resource, it
may be forced to sell some assests
External source
 long term source funds
 Share capital :the most important source of funds frp a limited company. It is often considered
as a permannat capital as it is ot repaid by the business, but the shareholder can have a share in
the profit
 Loan capital :any money which is borrowed fro a long period of time by a business loan capital
 Short term sources of funds
 Bank overdraft :the amount to be overdrawn depends on he needs of the business sat the time
and its credit standing.
 Bank loan :this is a loan which requires a rigid agreement between the borrower and the bank
 Leasing :leasing allows business to by plant, machinery or equipment without paying lare sums
of money immediately
 Credit card :this can be used to pay for hotel bills meals, shopping and materials etc
 Trade credit :it is a common method for business to buy materials and to pay for them at a later
date, usually between 30&90 days.
Factors affecting the choice of funds
 Costs of the fund :costs in terms of interest payments and other expenses: long tem and
short term
 Use or purpose of funds :for example, the budling of a new palnt is usually financed by
mortgage or share capital while the purchase of raw materials by trade credit or bank
overdraft
 Status and size of the business : for a large firm, there are more sources of finance and
often with a lower interest rates
 Financial situation of a firm :for example a buiisness in poor financial situation is forced
to pay high interest rate for loans and the bank often requires security or for their
financing
Sources of funds
 Debt capital :funds obtained through borrowing
 Equality capital :funds provided by the firm’s owners when they reinvest
earnings, or issue stock to investors.
conclusion

 Funds are important in financial management as they decide the future of

investors helps them to decide for undertakintg the pocess of selection of long
term investment or short term investment
Thanking you
HAJRA HAFEEZ