Finance which is generated through external borrowing over the long-term is often referred to as Loan Capital.

Main Types of Loan Capital

Debentures are normally associated with limited companies. A business will offer potential investors the opportunity to invest in the company through the purchase of debentures which are divided into units, similar in principle to shares. The investors, called debenture holders, are deemed as creditors to the business and not owners, and will receive interest payments from the company until, at an agreed date, the loan is redeemed, paid back in full. Most debentures are Secured, in that the holder of the debenture will have claim over either specified assets of the business should the business default on interest payments, or claim over general assets of the business up to the value of the debenture loan.

Mortgages Business may take out mortgages to purchase assets such as land and buildings. The land and buildings concerned are the security for the loan, should the business default on repayments, fail to back repayments. If the value of the land / buildings concern increases during the period of the mortgage, or the mortgage incorporates a period of fixed interest - and interest rates rise, this reduces the real cost of borrowing for the business.

Venture Capital Venture Capitalists offer capital, normally Ј100,000 plus, to business ventures which other financial institutions / investors might consider too risky. Usually the Venture Capital firm will require shares in the business and influence in the running of the company at a strategic level, to protect their investments, normally in the form of a non-executive position on the board. Their aim is to see the value of their shares in the business grow, so that at some latter date they may sell their interests in the business at a profit. Often this may involve the business being floated on the stock-exchange.

Business Angels 'Business Angels' are private investors, who invest directly in private companies in return for an equity stake and perhaps a seat on the company's board. Investments are normally in the region of Ј10,000 to Ј100,000. The main motivation for the Business Angel is the potential capital gain from their investment. However many Business Angels also invests to help businesses they believe in, and play a part in the entrepreneurial process. It is often the case that the Business Angel is, or was, involved in running their own business venture, and the company can gain from their experience.

25. What is financial analysis of a firm for?

Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their basis in making business decisions. Based on these reports, management may:

· Continue or discontinue its main operation or part of its business;

· Make or purchase certain materials in the manufacture of its product;

· Acquire or rent/lease certain machineries and equipments in the production of its goods;

· Issue stocks or negotiate for a bank loan to increase its working capital.

· other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.

Goals Financial analysts often assess(оценивать) the firm's:

1. Profitability- its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency- its ability to pay its obligation to debtors and other third parties in the long-term; 3. Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations; Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time. 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators.

Methods Financial analysts often compare financial ratios(пропорция, коэффициент) (of solvency, profitability, growth...):

Past Performance: Across historical time periods for the same firm (the last 5 years for example), Future Performance: Using historical figures and certain mathematical and statistical tehcniques, including present and future values, This extrapolation method is the main source of errors in financial analysis as past statistics are poor predictors of future prospects. Comparative Performance: Comparison between similar firms.

Comparing financial ratios are merely one way of conducting financial analysis. Financial ratios face several theoretical challenges:

They say little about the firm's prospects in an absolute sense. Their insights about relative performance require a reference point from other time periods or similar firms. One ratio holds little meaning. As indicators, ratios can be logically interpreted in at least two ways. One can partially overcome this problem by combining several related ratios to paint a more comprehensive picture of the firm's performance. Seasonal factors may prevent year-end values from being representative. A ratio's values may be distorted as account balances change from the beginning to the end of an accounting period. Use average values for such accounts whenever possible. Financial ratios are no more objective than the accounting methods employed. Changes in accounting policies or choices can yield drastically different ratio values. They fail to account for exogenous factors like investor behavior that are not based upon economic fundamentals of the firm or the general economy (fundamental analysis) .

26. What is a financial administration of a firm?

The Financial Administration Division is responsible for the overall fiscal management, accounting, and financial reporting for the Department. The Division's other functions include budgeting, payroll, purchasing, facilities management, mail operations, records retention, bond accounting and investment activities. The Division is also responsible for the coordination of information and planning relating to the state budget / appropriations process. The annual financial audit, conducted by an independent auditor, is facilitated through the Financial Administration Division.

Date: 2015-02-16; view: 905