FINANCE_1303

FINANCE_1303

The company finance is a join economic resources are available to the company for the procurement of goods and services (the assets) used to carry out to productive activities of the company.

Different ways of finance:

-We must first distinguish between companies with limited liability and unlimited, because the way to respond to claims determines the form of funding.
Most people doing business form limited companies because they may sell all their possessions in order to pay their debts. And a limited company is only liable for the amount of capital that has been invested in it.
In limited companies the owners have to borrow the capital from the bank for form the company.
To expand the company issues shares as a form of financing.
Sometimes invest profits back into the company issuing preference shares to the shareholders called bonus issue.
if the assets don’t cover the liabilities or the debts they remain unpaid. the creditors simply do not get all their money back.

-Is important to consider accounting for this we must distinguish between historical cost accounting and current cost accounting. the first one in times or inflation overstates the benefits and overestimating some assets and the current cost values assets at the price that would have to be paid to replace them today.
Referring to assets: Assets= liabilities + owners equity.
Assets includes: share capital, share premium and company’s reserves, used to finance the company
We must also take into account trading profits, sales of assets borrowing and the issues of shares which ultimately could mean an influx of money to finance our activities.
But we must monitor the profitability of our investments, the status of our accounts, payments of our debts, and so. Ultimately control our financial situation.

-Another opportunity for funding is trough the bonds. there is a difference between issuing a bond and buy. Who issues a bond acknowledging a debt and which buys the bond is financing the debt of the issuer. But at the same time, the buyer will be funded when the bond money be paid (Something similar happens with the shares). Borrowing money now is a future profit but many debts risks. It is important to pay debts.

Companies finance most of their activities by way of internally generated cash flows. And if they need more money they can sell their shares or issue bonds. Lately the companies issue their own bonds rather than borrow money from the bank because it is cheaper. Because the interests of bank loans are high.
The advantage of debt financing over equity financing is that bond interest is tax deducible.

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