The organization's internal sources of financing include: Debt securities
For businesses, both start-up and already developed, entrepreneurs are looking for sources of financing. Enterprises and organizations develop and live when there is constant financial income. At the same time, your own cash savings are often not enough to open and organize your own business. When drawing up a financial plan, you need to consider sources of financing.
Sources of financing can be divided into two types:
![](https://i2.wp.com/onlineserviceip.ru/wp-content/uploads/2017/11/gruppy_istochnikov_finansirovaniya.jpg)
These two forms of business financing can be used either separately or combined with each other.
Business financing
For the successful development of any business, it is necessary to find funds; without free money, a business dies out.
Also The state has programs for receiving grants, budget subsidies, and loans with a lower rate.
When distributing public funds, more attention is paid to innovative, socially oriented, and production enterprises. You will need to report for the funds received that they were used for their intended purpose. Some programs provide funds free of charge.
Concept of funding sources
Ensuring the development of the company includes financing various business operations. To do this, the company can use resources that were attracted from different sources. In economic practice, there are two main sources of financing:
1. Internal sources of financing;
2. External sources of financing (borrowed and raised funds);
To detail the sources of funding, we suggest considering Figure 1.
Internal financing- is the mobilization of one’s own financial resources that are generated in the process of the enterprise’s activities. The main sources of internal financing are: net profit, depreciation, debts of creditors, various reserves and income from the sale of property.
External financing- this is the use of funds for the activities of the enterprise that are received from external contractors. In turn, external financing is divided into attracted and borrowed funds. Subjects of external financing can be: financial and credit organizations, the state, legal entities and individuals, and others.
The figure below shows the systematization of the main sources of financing for the enterprise.
The main problem of Russian industrial enterprises is the worn-out condition of fixed production assets. Funds are subject to both physical and moral obsolescence. In the case of updating fixed assets, one of the key stages is the choice of a source of financing. In economic practice, the following sources of financing are distinguished:
* Internal financing (net profit, sale of assets, depreciation);
* Raised funds (investments, sale of shares and securities);
* Borrowed funds (loan, leasing, bill);
* Mixed financing.
Internal financing
Sources of financing is a complex economic category, because in the process of economic activity they are transformed into material, intellectual, technical, innovative and other types of resources. From the point of view of their attraction, they are divided into internal and external. In conditions of unstable economic situation, attracting external sources of financing is problematic, therefore business entities focus their financial activities on attracting internal sources of financing.
Internal sources of financing of business entities include net profit; depreciation charges, provision for future expenses and payments.
Net profit is the property of the founders (participants). The unused part of it is reflected in section I of the liability side of the balance sheet “Retained earnings”. In the future, it is used to replenish its own current assets, the formation of long-term assets, as well as the formation of reserve capital, material incentives and social development.
Depreciation charges accumulate during the operation of fixed assets. Depreciation calculations are usually used for the acquisition of new or replacement of worn-out long-term assets, intangible assets, technical innovations and other qualitative and quantitative updates to the production capacity of enterprises. Depreciation calculations can also be used to repair damaged assets.
Provision for future expenses and payments is created on the enterprise's own initiative. The effect of financing by securing subsequent payments is manifested due to the existence of a time gap between the moment of their formation and use.
External funding
The basis for the functioning of a loan is the movement of value in the sphere of exchange, during which a time gap arises between the movement of a product and its cash equivalent. If the movement of commodity flows is ahead of the movement of cash flows, then enterprises-consumers of goods, when the moment of payment for them arrives, do not always have a sufficient amount of funds to pay for the purchased goods, as a result of which producing enterprises experience a lack of funds, which can stop the production process. Therefore, they have a need for borrowed funds. Credit relations can also arise due to the peculiarities of production, untimely payments and other circumstances.
Sources of capital borrowing by business entities are varied. They can be attracted both on the credit and stock markets, from business entities, the state, as well as owners and employees of the enterprise.
According to the forms of lending, loans can be commodity and monetary. A trade loan is a form of commercial loan in which the lender transfers goods to the borrower under an agreement that provides for a debt obligation at the time of final settlement. The object of a monetary loan is funds in national or foreign currencies.
Loans vary in the following types:
- financial (bank loans and loans from financial and credit organizations);
- commercial (usually a short-term loan from one enterprise to another, which is provided in the form of deferred payment for goods, robots, services).
- Leasing is a loan that is issued with fixed assets, and which is concluded by drawing up a leasing agreement.
Special sources of external financing include financing from the owners of the enterprise or the sale of shares in the company. Often such sources are called the internal source of external financing. It includes additional contributions from shareholders in the company, sale of shares on the stock market, and others.
The owners of the enterprise can contribute additional financial resources through non-repayable investments, or through retained earnings. Such financing is a priority, since in this case the company is not a debtor to external contractors.
The sale of company shares can be carried out in different forms. The company can also pay dividends in the form of shares.
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Coursework in enterprise economics
"External and internal sources
financing the activities of the enterprise"
Saint Petersburg
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
CHAPTER 1. Financial resources of the enterprise. . . . . . . . . . . . . . . . . . . . . . . . . . .4
CHAPTER 2. Classification of sources of financing. . . . . . . . . . . . . . . . . . 7
2.1. Internal sources of financing of the enterprise. . . . . . . . . . . . . . . . 8
2.2. External sources of financing for the enterprise. . . . . . . . . . . . . . . . . .12
CHAPTER 3. Managing sources of financing. . . . . . . . . . . . . . . . . . .16
3.1. The ratio of external and internal sources
in the capital structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2. The effect of financial leverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
List of used literature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Introduction
Company is a separate technical, economic and social complex designed to produce benefits useful to society in order to make a profit. During its creation, as well as in the process of managing it, various issues are resolved, one of which is financing the activities of the enterprise, that is, providing the necessary financial resources for the costs of its implementation and development. Business entities receive these resources from various sources, without which no enterprise can exist and operate. And, therefore, it is not surprising that the issue of possible sources of financing is relevant today for many business entities and worries many entrepreneurs.
The purpose of the work is to study existing sources of funds, their role in the process of the enterprise’s activities and its development.
Setting priorities among sources of financing and choosing the most optimal sources is a problem for many organizations today. Therefore, this work will consider the classification of sources of financing the activities of an enterprise, the concept of financial resources, which is closely related to these sources, as well as the ratio in the capital structure of equity and borrowed funds, which has a significant impact on the financial and economic activities of the enterprise.
Consideration of these aspects will allow us to draw conclusions regarding a given topic.
CHAPTER 1. Financial resources of the enterprise
The concept of financial resources is closely related to the concept of sources of financing the activities of an economic entity. Financial resources of the enterprise- this is the totality of own funds and receipts of borrowed and raised funds intended to fulfill financial obligations, finance current costs and costs associated with the expansion of capital. They are the result of the interaction of receipt, expenditure and distribution of funds, their accumulation and use.
Financial resources play an important role in the reproduction process and its regulation, distribution of funds according to areas of their use, stimulate the development of economic activity and increase its efficiency, and allow monitoring the financial condition of an economic entity.
Sources of financial resources are all cash income and receipts that an enterprise or other economic entity has at its disposal in a certain period (or as of a date) and which are used to make cash expenses and deductions necessary for production and social development.
Financial resources generated from various sources enable the enterprise to timely invest funds in new production, ensure, if necessary, expansion and technical re-equipment of the existing enterprise, finance scientific research, development, their implementation, etc.
The main areas of use of an enterprise’s financial resources in the process of its activities include:
Financing the current needs of the production and trading process to ensure the normal functioning of production and trading activities of the enterprise through the planned allocation of funds for main production, production and auxiliary processes, supply, marketing and sales of products;
Financing administrative and organizational measures to maintain a high level of functionality of the enterprise management system through its restructuring, allocation of new services or reduction of the management staff;
Investing in the main production in the form of long-term and short-term investments for the purpose of its development (complete renovation and modernization of the production process), creation of new production or reduction of certain unprofitable areas;
Financial investments are the investment of financial resources for purposes that bring the enterprise higher income than the development of its own production: the acquisition of securities and other assets in various segments of the financial market, investments in the authorized capital of other enterprises in order to generate income and obtain rights to participate in the management of these enterprises, venture financing, provision of loans to other companies;
The formation of reserves is carried out both by the enterprise itself and by specialized insurance companies and state reserve funds at the expense of regulatory contributions to maintain a continuous circulation of financial resources and protect the enterprise from unfavorable changes in market conditions.
Financial reserves are of great importance to ensure uninterrupted financing of the production process. In market conditions their role is significant. These reserves are capable of ensuring a continuous circulation of funds in the reproduction process even in the event of huge losses or the occurrence of unforeseen events. The enterprise creates financial reserves from its own resources.
Financial support for reproduction costs can be carried out in three forms: self-financing, lending and government financing.
Self-financing is based on the use of the enterprise's own financial resources. If its own funds are insufficient, it can either reduce some of its expenses or use funds mobilized in the financial market through transactions with securities.
Lending is a method of financial support for reproduction costs in which costs are covered by a bank loan provided on the basis of repayment, payment, and urgency.
State funding is provided on a non-repayable basis from budgetary and extra-budgetary funds. Through such financing, the state purposefully redistributes financial resources between production and non-production spheres, sectors of the economy, etc. In practice, all forms of cost financing can be applied simultaneously.
CHAPTER 2. Classification of sources of financing
The financial resources of an enterprise are transformed into capital through appropriate sources of funds. Today their various classifications are known.
Sources of financing can be divided into three groups: used, available, potential. The sources used represent a set of such sources of financing the activities of the enterprise that are already used to form its capital. The range of resources that are potentially real for use are called available. Potential sources are those that theoretically can be used for the functioning of commercial enterprises, in conditions of better financial, credit and legal relations.
One of the possible and most common groupings is the division of sources of funds by timing:
Sources of short-term funds;
Advanced capital (long-term).
Also in the literature there is a division of funding sources into the following groups:
Own funds of enterprises;
Borrowed funds;
Involved funds;
Budget allocations.
However, the main division of sources is their division into external and internal. In this version of the classification, own funds and budgetary allocations are combined into a group of internal (own) sources of financing, and external sources are understood as attracted and (or) borrowed funds.
The fundamental difference between the sources of own and borrowed funds lies in the legal reason - in the event of liquidation of an enterprise, its owners have the right to that part of the enterprise’s property that remains after settlements with third parties.
2.1. Internal sources of financing of the enterprise
The main sources of financing the enterprise's activities are its own funds. Internal sources include:
Authorized capital;
Funds accumulated by an enterprise in the course of its activities (reserve capital, additional capital, retained earnings);
Other contributions from legal entities and individuals (targeted financing, charitable contributions, donations, etc.).
Equity capital begins to form at the time of creation of the enterprise, when its authorized capital is formed, that is, the totality in monetary terms of contributions (shares, shares at par value) of the founders (participants) to the property of the organization upon its creation to ensure activities in the amounts determined by the constituent documents. The formation of authorized capital is associated with the peculiarities of the organizational and legal forms of enterprises: for partnerships it is share capital, for joint-stock companies - share capital, for production cooperatives - a mutual fund, for unitary enterprises - an authorized fund. In any case, the authorized capital is the start-up capital necessary to start the activities of the enterprise.
Internal financing involves the use of those financial resources, the sources of which are generated in the process of the financial and economic activities of the organization. Examples of such sources include net profit, depreciation, accounts payable, reserves for future expenses and payments, and deferred income.
At external financing funds coming into the organization from the outside world are used. Sources of external financing can be founders, citizens, the state, financial and credit organizations, and non-financial organizations.
Grouping of financial resources of organizations by sources of their formation is presented in the figure below.
An organization's financial resources, unlike material and labor resources, are interchangeable and susceptible to inflation and devaluation.
Currently, an urgent problem for domestic industrial enterprises is the state of deterioration of which has reached 70%. In this case, we are talking not only about physical, but also about moral wear and tear. There is an urgent need to re-equip Russian enterprises with new high-tech equipment. In this case, the choice of source of financing for this re-equipment is important.
The following sources of funding are distinguished:
- Internal enterprise sources(net profit, depreciation, sale or rental of unused assets).
- Involved funds(foreign investment).
- Borrowed funds(, bills).
- Mixed(complex, combined) financing.
Internal sources of financing of the enterprise
Involved funds
When choosing a foreign investor as a source of financing, an enterprise should take into account the fact that the investor is interested in high profits, the company itself and his share of ownership in it. The higher the share of foreign investment, the less control the owner of the enterprise has.
Remains debt financing, in which there is a choice between and . Most often, in practice, the effectiveness of leasing is determined by comparing it with a bank loan, which is not entirely correct, because for each specific transaction one has to take into account its own specific conditions.
Credit - as a source of financing for an enterprise
- a loan in monetary or commodity form provided by the lender to the borrower on the terms of repayment, most often with the borrower paying interest for using the loan. This form of financing is the most common.
Advantages of the loan:
- the credit form of financing is characterized by greater independence in the use of received funds without any special conditions;
- Most often, a loan is offered by a bank that services a specific enterprise, so the process of obtaining a loan becomes very quick.
The disadvantages of the loan include the following:
- the loan term in rare cases exceeds 3 years, which is prohibitive for enterprises aimed at long-term profit;
- To obtain a loan, an enterprise must provide collateral, often equivalent to the amount of the loan itself;
- in some cases, banks offer to open a current account as one of the conditions for bank lending, which is not always beneficial to the enterprise;
- With this form of financing, an enterprise can use a standard depreciation scheme for purchased equipment, which obliges it to pay property taxes throughout the entire period of use.
Leasing - as a source of financing for an enterprise
is a special complex form of entrepreneurial activity that allows one party - the lessee - to effectively update fixed assets, and the other - the lessor - to expand the boundaries of activity on mutually beneficial terms for both parties.
Advantages of leasing:
- Leasing involves 100% lending and does not require you to start payments immediately. When using a conventional loan to purchase property, the company must pay about 15% of the cost from its own funds.
- Leasing allows an enterprise that does not have significant financial resources to begin implementing a large project.
It is much easier for an enterprise to obtain a leasing contract than a loan - after all the equipment itself serves as security for the transaction.
A leasing agreement is more flexible than a loan. A loan always involves limited amounts and repayment terms. When leasing, an enterprise can calculate its income and work out with the lessor an appropriate financing scheme that is convenient for it. Repayment can be made from funds received from the sale of products produced on leased equipment. The company has additional opportunities to expand production capacity: payments under the leasing agreement are distributed over the entire term of the agreement and, thus, additional funds are freed up for investment in other types of assets.
Leasing does not increase debt in the company’s balance sheet and does not affect the ratio of equity and borrowed funds, i.e. does not reduce the enterprise’s ability to obtain additional loans. It is very important that equipment purchased under a leasing agreement may not be listed on the lessee’s balance sheet during the entire term of the agreement, and therefore does not increase assets, which exempts the company from paying taxes on acquired fixed assets.
The Russian Federation has retained the right to choose the balance sheet accounting of property received (transferred) under financial lease on the balance sheet of the lessor or lessee. The initial cost of the property that is the subject of leasing is the amount of the lessor's expenses for its acquisition. In addition, since 2002, regardless of the chosen method of accounting for the property that is the subject of the leasing agreement (on the balance sheet of the lessor or the lessee), lease payments reduce the tax base (Article 264 of the Tax Code of the Russian Federation). Article 269 of the Tax Code of the Russian Federation introduces a restriction on the amount of interest on loans that the lessor can attribute to reducing the tax base, but in other cases the lessor can attribute the amount of interest on the loan to reducing the tax base.
Leasing payments, paid by the enterprise, entirely attributed to production. If the property received under leasing is accounted for on the balance sheet of the lessee, then the enterprise can receive benefits associated with the possibility of accelerated depreciation of the leased asset. Depreciation charges for such property can be calculated based on its cost and norms approved in the prescribed manner, increased by a factor not exceeding 3.
Leasing companies unlike banks no deposit needed, if the property or equipment is liquid on the secondary market.
Leasing allows an enterprise to minimize taxation on completely legal grounds, as well as to attribute all costs of equipment maintenance to the lessor.