finance_1001

A company to make an investment needs financing. This can be with internal resources and other external resources.

The internal resources are satisfied with the shareholders, contributing money either emitting more shares. The advantage is that this financing does not have to give back itself in a period of certain time. This financing does not have any cost for the company. The disadvantage is that the shareholders do not have limitless money and is needed external financing to be able to cover all the investment. The internal financing also can come from previous profits.

The external financing comes from the outside. Normally it is given by the banks it by means of loans. These can be short, long and half term. This financing has a cost for the company, but the advantage is that it is moderate plus the yield in the investments. In a loan they give an amount you of money by which payments an interest in the future(interest rate). Another disadvantage is that to obtain this financing has certain difficulty and is necessary to demonstrate that the loan will be able to be given back in the future, reason why before receiving the money the bank has to make a study for looking out if the investment is going to be viable.

The balance sheet shows a company’s financial situation where the assets must be equivalent to the liabilities plus owners.

Mark = 6

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License