Types of Financial Sources : Assignment

MFRD

INTRODUCTION
Financial sources of different types are available to firms but it is hard for them to select
specific one. Varied avenues of finance are analyzed and best one is picked for the firm. way in
which cost can be control is reflected by preparing and interpreting cash budget for the firm.
Along with this, way in which debt equity mix have impact on income statement and balance
sheet is also discussed in detaail. Ultimately, ratio analysis is conducted and positive and
negative sides are identified and comments are made on company performance.
TASK 1
1.1
External source of finance
 Equity: Under this business firm can raise money from the general public. In this regard
it need to launch IPO in the primary market. Contact need to be made with the investment
banker and they determine issue price of shares for the business firms (Christensen,
2017). Under this source of finance business firms raised huge amount of money in their
business and it can be said that it is source of finance commonly used by companies.
 Debt or bank loan: Debt or bank loan is the one of the important source of finance which
is used by all size of business firms. There is interest rate that is charged by the banks on
principal amount and it may be fixed or flexible in nature. Firms need to cautiously select
specific sort of interest rate that best suit to their busines requirements.
 Bank overdraft: This is also variant of bank loan and under this loan for few days is
taken to meet working capital needs of the business. Interest rate may be low on bank
overdraft (Smith, 2014).
Internal source of finance Retained earnings: In case of retained earning there is not cost of finance as it is
internal to business. It is basically a portion of profit that is earned by the firm in its
business. Usually, companies kept aside some part of profit so that it can be used to
finance business requirements whenever required.
1.2
Sources of finance Legal implications Financial Dilution of control
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