finance 0666

The way that a company finances it self is one of the most important decision for managers. We are going to separate the options between small and big companies:

Small ones have more problems to gain money, a first way could be to ask owners to increase there participation by investing more money.This doesn't have any cost for the company but it is may be not so easy to the owners to invest more. The other option is to borrow money from banks.This option, if the company is working well, should be easy to be done, except at crisis time like now, but will have a cost called interest rate.

Big companies have this two options apart from others that I will explain now. A growing company uses to issue shares or stocks, becoming a floating company.This act gives it new ways of financing, they can issue more shares, offered first to existing shareholders, of course at a cheaper price from existing shares. This issuing of new shares can also be done by capitalising part of the profits, instead of paying them like dividends, it is called bonus issues. This ways of financing increase the asset of the company and the number of shareholders, if the managers think they only need money for a period of time and they can afford to give it back, they have two others options of financing; borrowing from a bank, like we said before, or issuing bonds. To issue bonds is to ask directly to the market, from differents investors, a money loan that will be refunded at a lower interest rate than that from the bank.

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