Finance2525

This homework is from Jose Diaz Rato because his wiki is broken.

Once a company is set up with the initial capital issued ( and its premium, if any) it may need more fonds. There are several reason for it. It could happen that the company does not obtain the expected profits and enters into losses. It could also happen that the company may need more finds to finance its expansion in order to achieve new goals. In an ideal market, companies grow and achieve initiatives through the running of the business. But the reality for most manufacturers, public or private, is that expansions and capital expenditures require an infusion of cash.
In deciding which option to choose, important variables include the reason why funds are needed, the circumstances in which the company finds itself and its style of ownership and management. Let us go through the three ways of financing.

1 – Capital increase.

This is the easiest way to finance the company, but it depends on the networth of the shareholders. If they do not have it or even if they have it but they do not want to risk more funds in the company the capital increase is rejected.

2 – Debt.

This way of financing depends on several factors, as; market conditions; cashflow of the company to serve the debt; the current status of the loans already granted to the company…

There could be shareholders financing in cases they do not want to invest more money on a long term basis and they rather grant a short term loan to the company. In such cases the spread is higher than banking spreads.

3 – Sell equity.

In order to finance the company it may have the possibility of selling a non strategic asset of the company, or even doing a sale and lease back.

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