SOURCES OF FNANCE

SHORT TERM & LONG TERM

Short term sources
Commercial papers
Factoring
ntercorporate deposits
Working Capital Loans
Commercial Papers
one of the non-bank sources of working
capital finance .
a money market instrument.
regulated by the directions of the Reserve
Bank of ndia.
The secondary market is yet to develop.
Issue of CommerciaI Paper
Commercial Paper can be issued by a company
whose
(i) tangible net worth (paid-up capital plus free
reserves) is not less than Rs 4 crores
(ii) fund based working capital limits are not less
than Rs. 4 crores
(iii) Specified Credit Rating of P2 is obtained
from CRSL, A2 from CRA and PR2 from
CARE
(iv) Borrowal health is classified under health
code No. 1 and
(v) Current ratio is 1.33: 1.
&sance :issued for a minimum period of
three months and maximum of one year
Denomination: issued in denominations
of Rs. 5 lakhs. But the minimum lot of
investment is Rs 25 lakhs (face value) per
investor.
CeiIing :should not exceed 75 per cent of
the company's fund based working capital
ode of Issue and Discount Rate:
should be in the form of usance
promissory note negotiable by
endorsement and delivery. t can be
issued at such discount to face value as
may be decided by the issuing company.
Procedure for Issue:
issued only through the bankers who have
sanctioned working capital limits to the company
should submit the proposal in the form
prescribed by the RB to the bank which
provides working capital along with the credit
rating of the company.
privately place the issue within two weeks by the
company or through the good offices of a
merchant banker.
FACTORNG
the factoring agent buys up the receivable
from the seller.
provides immediate finance to the seller in
consideration of assigning the receivable
to him.
A factor makes the conversion of
receivables into cash possible.
risk of the debt going bad is passed on to
the factor.
Client concludes a credit sale with the customer.
Client sells the customer's account to the factor and notifies the
customer.
Factor makes a part payment (advance) against the account
purchased after adjusting for commission and interest on the
advance.
Factor maintains the customer's account and follows up for
payment.
Customer remits the amount due to the factor.
Factor makes the final payment to the client when the account is
collected or on a guaranteed payment date.
FORMS OF FACTORNG
Recourse factoring
Non-recourse factoring
LONG-TERM SOURCES OF
FUND
Shares
Debentures
Term loans
Venture capital
Lease financing
Shares
Equity shares
Preference shares
Primary market
Secondary market
Debentures
Debentures are debt securities
a document which either creates a debt or
acknowledges it
issued under the Company's Common
Seal.
Debentures holders have no right to vote
at the meetings of the companies.
INDS OF DEBENT&RES
Secured debentures
Naked debentures
Redeemable debentures
Perpetual debentures
Convertible debentures
Term Loans
Long term debt with a maturity of more
than one year.
Obtained from banks & financial
institutions
Mainly to finance company's capital
expenditure
Venture Capital
Early stage financing of new & young
enterprises.
Features:
Equity participation
Long term investment
Participation in management
Stages in venture capital financing
Early stage financing
Expansion financing
Acquisition/buyout financing growth
Process of venture capital financing
Deal origination
Screening
Evaluation (due diligence)
Risk analysis
Deal structuring
Post-investment activity
Exit plan
Method of venture financing
Equity
Conditional loan
ncome note
Lease Financing
Lease is a contract between a lessor,the
owner of the asset & a lessee,the user of
the asset.
Lease rental
Up-fronted leases
Back ended leases
Types of leases
Operating lease
Financial lease
Sale & lease back
Financial restructuring
Debt equity swaps
A transaction in which a corporation exchanges
existing bonds (debt) for newly issued stock
(equity). For example, XYZ company can in
essence cancel a portion of their debt and
transfer the equivalent balance to equity. A debt-
equity swap can help a company that is in
financial trouble by canceling some of its
outstanding debt.
Mergers & acquisitions
Two or more companies combine into one
company
a merger happens when two firms, often of
about the same size, agree to go forward
as a single new company rather than
remain separately owned and operated.
Ex:Mittal Steel(25
th
June,2006) decided to
merge with Arcelor, with the new company
to be called Arcelor Mittal.
n practice, however, actual mergers of
equals don't happen very often.
one company will buy another and, as part
of the deal's terms, simply allow the
acquired firm to proclaim that the action is
a merger of equals,
Forms of merger
Horizontal merger
Vertical Merger
Conglomerate merger
Acquisition
When one company takes over another
and clearly established itself as the new
owner, the purchase is called an
acquisition.
Ex: Tata-Corus acquisition
Leverage buy outs
Acquisition of a company in which the
acquisition is substantially financed
through debt.