This is an PPT on Source of finance by group of students

1. BIRLA INSTITUTE OF TECHNOLOGY MESRA,
JAIPUR CAMPUS
TOPIC:- SOURCE OF FINANCE
CLASS – MCA 2nd SEM.
:- SATYA PRAKSH RANJAN (MCA/25005/18)
:- GAURAV PRAKSH (MCA/25006/18)
:- TARUN TIWARI (MCA/25007/18)
:- APOORVA NAGAR (MCA/25013/18)
Presented To:
PRIYANSHU SIR

2. GAURAV PRAKSH
 Short term & Long term loan
 primary market & Secondary Market
STOCK MARKET

3. SOURCES OF FINANCE
• Sources of finance for business are equity, debt,
debentures, retained earnings, term loans, working
capital loans, letter of credit, euro issue, venture funding
etc. These sources of funds are used in different
situations.
• The process of selecting the right source of finance
involves in-depth analysis of each and every source of
fund.
• They are classified based on time period, ownership and
control, and their source of generation.

4. SHORT TERM FINANCING
• Short term finance refers to financing needs for a small period normally less than a year.
• This type of financing is normally needed because of uneven flow of cash into the business,
the seasonal pattern of business, etc.
• It is also known as Working Capital Financing
Trade Credit
It is the credit extended by the accounts payables.
Business Line Of Credit
In this type of financing, an amount is approved by the issuing bank or financial institution.
Factoring
The accounts receivables of a business are sold to a third party at a price which is lower to
the realizable value of the accounts receivable.
Invoice Discounting
Discounting invoices means the bank will pay you the money at the time of discounting and
collects the money from your customer when the bill becomes due.

5. LONG TERM FINANCING
• The funds which are not paid back within a period of less than a
year are referred to as long term finance.
• The primary purpose of obtaining long-term funds is to finance
capital projects and carrying out operations on an expansionary
scale.
• Some of the main sources of long term finance are:
Equity
They represent the ownership funds of the company and are
permanent to the capital structure of the capital structure of the firm.
Bonds
Bonds are normally issued against collateral and are therefore a highly
secured form of long term finance. They are debt instruments involving
two parties- the borrower and the lender.

6. Term Loan
They are borrowings made from banks and financial institutions. Such
long term finance is generally procured to fund specific projects.
Internal Accruals
Internal accruals are nothing but the reserve of profits or retention of
earnings that the firm has created over the years.
Venture Capital
Venture Capital firms invest into companies at their inception or seed
stage. Their investment takes the form of ownership funds and forms a
part of the permanent capital of the firm.

7. STOCK MARKET
Primary Market
• A primary market issues new securities on an exchange for
companies, governments and other groups to obtain financing.
• Initial public offerings(IPO) are primarily sold in this market.
Features:
• Sells proceeds go to the issuing company.
• Purchases through IPO requires huge investments.
• Price usually don’t fluctuate.
• Issuing companies hires investment banks to manage IPO.
• Price of the security is set beforehand.

8. Secondary Market
• A secondary market is a marketplace where already issued
securities both shares and debt can be bought and sold by the
investors.
• It is a market where investors buy securities from other investors.
Features:
• One can buy as many shares he/she wants.
• Sales proceeds go to the investors who sell them.
• Price of shares fluctuate.
• Investors hire brokers to manage to carry their trade.
• Demand and supply is the basis of price determination.

9. Classes of Shares;
Preference shares
Equity shares
SATYA PRAKASH RANJAN

10. A unit of ownership that represents an equal proportion
of a company's capital. It entitles its holder (the
shareholder) to an equal claim on the company's profits
and an equal obligation for the company's debts and
losses.

11.  Preference Shares
1. It offers a fixed rate of dividend.
2. Right to get capital on winding up, before anything is
paid to equityshareholders.
 Equity or OrdinaryShare
1. These shares have voting rights.
2. It doesn’t offer a fixed rate of return.
3. They are not entitled to get capital on winding up,
before paying to preference shareholders.

12. 1. CUMULATIVE PREFERENCE SHARES
Fixed rate of dividend is guaranteed.
At the time of inadequate profit, they will not loss
anything.
Arrear will get in subsequent years.
2. Non-Cumulative Preference Shares
Fixed rate of dividend is guaranteed.
At the time of inadequate profit, they will not get
anything.

13. 3. PARTICIPATING PREFERENCE SHARES
Fixed rate of dividend is guaranteed.
Entitled to share the surplus profit.
4. Non-Participating Preference Shares
Fixed rate of dividend is guaranteed.
Does not share the surplus profit.
5. Redeemable Preference Shares
Shares which a company may repay after a fixed
period of time or earlier.
5. Irredeemable PreferenceShares
It do not carry the arrangement for redemption.
Shares are repayable only at winding up.

14. 7. CONVERTIBLE PREFERENCE SHARES
It can be converted into Equity shares within a
certain period.
8. Non-Convertible Preference Shares
It cannot be converted into Equity shares.

15. IT IS A SHARE, WHICH IS NOT A
PREFERENCE SHARE IS CALLED
EQUITY SHARE.
The whole of the profit of a company is entitled to
these shareholders, after paying a fixed dividend to
preference shareholders.
They doesn't get a fixed rate of dividend.
They will get back their capital only after paying
preference share holders.

16. Nominal value islower.
Dividend varies accordingto
profit.
No right for arrears of
dividend.
No priority in dividend and
repayment ofcapital.
Cannot be redeemed.
There is more risk.
Wider votingright.
Control over management.
Highly speculative.
Ready to take risk and to get
greater dividend prefer this.
Equity Shares
Nominal value ishigher.
Rate dividend isfixed.
Cumulative preference shares
get arrears.
Priority in dividendand
repayment ofcapital.
Can be redeemed.
The risk islower.
Limited voting right.
No control overmanagement.
Less speculative.
Not ready to take risk and
expect steady incomeprefer
this.
Preference Shares
DIFFERENCE BETWEEN

17.  VENTURE CAPITAL
 MUTUAL FUND
APOORVA NAGAR
Debentures

18. VENTURE CAPITAL
• Venture capital is financing that investors provide to startup
companies and small businesses that are believed to have long-
term growth potential.
• Venture capital generally comes from well-off investors, investment
banks and any other financial institutions.
• Venture capital focus on emerging companies seeking substantial
funds for the first time.
• Venture Capital investment is also referred to risk capital or patient
risk capital

19. FEATURES:
• High Risk
• Lack of Liquidity
• Long term horizon
• Equity participation and capital gains
• Venture capital investments are made in innovative projects
• Suppliers of venture capital participate in the management of the
company.
VENTURE CAPITAL FUNDING PROCESS
1.Idea generation and submission of the Business Plan
2.Introductory Meeting
3.Due Diligence
4.Term Sheets and Funding

20. ADVANTAGES:
• Brings wealth and expertise to the company.
• The business does not stand the obligation to repay the money.
• In addition to capital, it provides valuable information, resources,
technical assistance to make a business successful .
DISADVANTAGES:
• As the investors become part owners, the autonomy and control of
the founder is lost.
• It is an uncertain form of financing.
• Benefit from such financing can be realised in long run only.

21. MUTUAL FUNDS
• A mutual fund is a type of financial vehicle made up of a pool of money
collected from many investors to invest in securities such as stocks,
bonds, money market instruments, and other assets.
• Mutual funds are divided into several kinds of categories, representing
the kinds of securities they invest in, their investment objectives, and
the type of returns they seek.
• Mutual funds charge annual fees (called expense ratios) and, in some
cases, commissions, which can affect their overall returns.

22. TYPES:
EQUITY FUNDS
This sort of fund invests principally in stocks.
FIXED-INCOME FUNDS
A fixed income mutual fund focuses on investments that pay a set rate
of return, such as government bonds, corporate bonds, or other debt
instruments.
INDEX FUNDS
The index fund manager buys stocks that correspond with a major
market index.
BALANCED FUNDS
Balanced funds invest in both stocks and bonds to reduce the risk of
exposure to one asset class or another.

23. ADVANTAGES:
• Low Cost
• Increased Diversification
• Daily liquidity
• Professional Investment Management
• Service and convenience
• Government Oversight
DISADVANTAGES:
• Fees
• Less control over timing of recognition of gains
• Less predictable income
• No opportunity to customize

24. BANK LOAN
WORKING CAPITAL LOAN
TERM LOAN
TARUN TIWARI

25. A bank loan is the most common form of loan capital for a business.
A bank loan provides medium or long-term finance. The bank sets
the fixed period over which the loan is provided (e.g. 3, 5 or 10
years), the rate of interest and the timing and amount of repayments.
WHAT IS BANK LOAN?

26. WORKING CAPITAL LOAN
A working capital loan is a short-term business loan, meaning it
must be paid back in as little as four months.
 It is designed to cover day-to-day operations and regular
expenses, so the amount you are provided is based on the cost of
running your business.

27. EXAMPLE OF WORKING CAPITAL
For example,
Suppose company XYZ’s current capital and human resource
incur $1000 in monthly expenses from daily operations. Company
XYZ monthly revenue, however is only $700. In order to meet
monthly expenses, company XYZ takes out a working capital
loan for $300 until its monthly revenue reaches the $1000
required.

28. TERM LOAN
A type of commercial loan that has to be repaid in regular payments
over a set period of time is referred to as term loan .
Term loan is a good way to quickly increase capital in order
to raise business, supply capabilities or range.
 Individuals can have a term loan but they are usually used for
small business loans. It is an attractive loan for new or expanding
enterprises, as they have lower issuance costs.

29. TYPES OF TERM LOANS
 Typically lines of credit , working capital loans or
account receivable loans usually reach maturity
within one year or less .
 Short term loan is an option for an established
business that has a strong support and patronage.
 In a normal economy, interest rates on short-term
loans are higher than interest rates on long-term
loans.
Short term loans :

30. Long term loan :
 Usually mature in three to ten years , but can be
longer for real estate or equipment.
 These loans are used for major business expenses
such as vehicles , purchasing facilities , construction
and furnishing .
 Can also be used to carry a business through
depressed cycle

31. THE TERM LOAN CAN BE AVAILED TO:
 Purchase of Fixed Assets
 Switching of Higher Interest Loans
 Mortgage Term Loan

32. Definition
Usage
Source
DIFFERENCE BETWEEN WORKING CAPITAL LOAN AND TERM LOAN

33. THANK YOU