sources of finance

Question 1

financial markets

Answer 1

finncial markets -use it to tade a wide range of financial securities
money and capital markets- money markets used to raise short term finance through electronic networks .capital market used to raise long term finance through jse
primary and secondary market- primary market where shares are issued for the first time .Secondary markets market for trading securirties that are directly issued.

Question 2

Differentiate between equity finance and debt finance

Answer 2

equity finance is finance provided by the owner of the company or internal sources
debt finance is finance raised through loans or debt instruments in which interest is payable

Question 3

explain the proocess of equity finance

Answer 3

ordinary shares - issued to owners of the entity in exchange for monetary investments ,giving sharehlders the right to recieve dividends when declared by the company
preference share - entitle preference shareholders to recieve fixed dividends annually
retained earnings - accumulated profts kept in the company since incoporation ,reinvested instead of being paid to shareholders ,use internasl sources to fund operations ,making it the cheapest sources of finance .

Question 4

discuss the debt finace long term financing

Answer 4

Bond and debentures- refer to finanacial securities issued by the organisation to raise funds from investors.They come with fixed interest rates and are repaid on a set date .Bonds refer to non current debt instruments that include debentures
loans - funds borrowed from financial institutions to finance operation or capital outlays,they are repayable over an agreed short or long term period.They can be secured or unsecured with either fixed or variable interest rate.

Question 5

discuss the debt finance short term financing

Answer 5

*Factoring - organizations sell ther recoevables to a factoring company, which advances a portion or all of the outstanding amounts to finance operations .The factoring company collects recievables from debtors,charging a fee which is a perecentage of the outstanding amount .
*short term loans- short term loans from banks and other finanacial institutions can be used to fund short term obligations .
*Bank overdrafts - Allow organisations to negotiate an overdraft facility with their bank, enabling their account balance to go below zero , which means the organisation woes the bank money . which typically charges a fixed fee for the facility and interest on the borrowed amount .
*Line of credit - contractual agreements that specify the amount, repayment terms and condtions They provide the organisation with access to funds typically short term, allowing them to draw on available credit without applying each time they need money
*Revolving credit facilities -Available over long term and can be used continually.Interest is charged when facility is used and a fee will be charged to have the facility in place

Question 6

what are other sources of funding

Answer 6

*venture capital - companies that invest in other business, usually requiring equity stakes .They typically focus on more established business rather than startup businesses
*Business angels- individuals with access funds invest in businesswith good growth potentional.They provide funding in exchange for equity investment.They are interested in startup businesses.
*Crowd funding - raised by getting contributions from various individuals ,socail media used to drive these.