finance_1804

A company that hasn’t got a proper source of finance is a company that is directed to bankruptcy. The financing of the companies are all the resources made available to them for the purchase of goods and liabilities. Companies have two different ways of financing themselves.
The first one consists in the equity, which is all the capital invested by the firm itself, founders or shareholders … Among this kind of financing we found one of the most common one: selling shares, which can bought by friends, employees or the founder itself; or trade them publicly in a stock exchange market. Every year, the company will pay a dividend to shareholders. Another way of internal financing is based in grants or public financial helps, which are normally given by public institutions. An essential part of finance is self-financing: using the company’s own resources (like last year non-used profit) in financing projects. In general, financing by internally generated cash flows gives the company more reliability on herself, giving the chance to remain shielded from exterior risks.
But a company wouldn’t be able to survive in the highly-competitive market that exists without external resources, which are mainly liabilities. The most important way of this type of financing is issuing bonds, which is a long term debt financing. Bonds are liquid, and have the advantage of being tax deductible, which allows the company to deduct interests before paying tax. Credits also appear to be a useful mean of finance. They are given by a financial institution such as a bank. The problem is that, the less solvent the company, the higher the conditions from the lender.
As we have seen, companies have different ways of financing, each of them with positive or negative aspects: but in economy the risk is always present.

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