Page 41 - DMGT207_MANAGEMENT_OF_FINANCES

Management of Finances

Notes It is evident from the above section that funds can be raised from the same source for meeting
different types of financial requirements.

Notes Financial sources of a business can also be classified as follows by using different
basis:
1. According to period:
(a) Long-term sources
(b) Medium-term sources

(c) Short-term sources
2. According to ownership:
(a) Owner's capital or equity capital, retained earnings, etc.
(b) Borrowed capital such as debentures, public deposits, loans, etc.

3. According to source of generation:
(a) Internal sources e.g., retained earnings and depreciation funds, etc.
(b) External sources e.g., debentures, loans, etc.
However for the sake of convenience, the different sources of funds can also be classified
into following categories:
1. Security financing – financing through shares and debentures
2. Internal financing – financing through retained earning, depreciation

3. Loans financing - this includes both short-term and long-term loans
4. International financing
5. Other sources

Self Assessment

Fill in the blanks:
1. Long-term financial needs generally refer to funds for a period exceeding ……………….
years.
2. Investment in ………………. financial assets is known as meeting of working capital
requirements of the concern.

3.2 Long-term Sources of Finance

There are different sources of funds available to meet long-term financial needs of the business.
These sources may be broadly classified into share capital (both equity and preference) and debt
(including debentures, long-term borrowings or other debt instruments). In recent times in
India, many companies have raised long-term finance by offering various instruments to public
like deep discount bonds, fully convertible debentures, etc. These new instruments have
characteristics of both equity and debt and it is difficult to categorize these either as debt or
equity.

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