Unit-5 Methods Of Raising Finance

In this unit you will learn why finance is needed, what the sources of finance and the methods of raising finance.

Discuss briefly the importance of finance in business. Distinguish between fixed capital and working capital?

State the purposes for which working capital is required. Discuss the factors determining working capital needs?

What are the advantages of raising capital through borrowings?

What is meant by ownership capital? What are its merits and limitations?

State the methods of raising fixed capital?

What are the methods of raising short-term capital? Discuss

Briefly explain the merits and demerits of issuing debentures. Compare it with equity shares as a method of raising fixed capital?

Compare the relative advantages and disadvantages of issuing equity shares and preference shares?

What are the advantages of raising finance through public deposits? What are the legal requirements to be fulfilled for raising public deposits?

Discuss briefly 'factoring' and 'discounting of bills of exchange' as methods of raising short-term finance?

What do you understand by overdraft and cash credit facilities? Mention the types of securities required for cash credit and overdraft?

What is meant by capital structure? What factors should management take into account while deciding on a capital structure?

What are the methods of raising short-term capital? Discuss

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The following methods may be used to finance short-term capital:

Trade credit- Outstanding amounts payable to suppliers of raw materials and , consumable items and bills payable relating to credit purchases
Factoring - Assignment of book debts to a bank and receiving cash in advance with the responsibility of collecting the debts taken over by the bank on payment of specified charges.
Discounting bills of exchange- When goods are sold on credit, bills of exchange are generally drawn for acceptance by the buyers of goods.
Bank overdraft and cash credit- Overdraft is a temporary arrangement with the bank which permits the company to overdraw from its current deposit account with the bank up to a certain limit. The overdraft facility is also granted against securities as in the case of cash credit.
Public deposits.