Financing of business firms is a set of forms and methods, principles and conditions for financial support for simple and expanded reproduction. Financing refers to the process of generating funds or, more broadly, the process of generating capital for a company in all its forms. The concept of "financing" is quite closely related to the concept of "investing"; If financing is the formation of funds, then investing is their use. Both concepts are interrelated, but the first precedes the second. It is impossible for a company to plan any investments without having sources of financing. At the same time, the formation of a company's financial resources occurs, as a rule, taking into account the plan for their use.
When choosing sources of financing for an enterprise, it is necessary to solve five main problems:
1) determine the needs for short- and long-term capital;
2) identify possible changes in the composition of assets and capital in order to determine their optimal composition and structure;
3) ensure constant solvency and, therefore, financial stability;
4) use own and borrowed funds with maximum profit;
5) reduce the cost of financing business activities.
Sources of financing for an enterprise are divided into internal (equity capital) and external (borrowed and attracted capital). Internal financing involves the use of own funds and, above all, net profit and depreciation charges.
Financing from your own funds has a number of advantages:
P, due to replenishment from the profit of equity capital, the financial stability of the enterprise increases;
The formation and use of own funds is stable;
External financing costs (debt servicing to creditors) are minimized;
The process of making management decisions on the development of the enterprise is simplified, since the sources of covering additional costs are known in advance.
The level of self-financing of an enterprise depends not only on its internal capabilities, but also on the external environment (tax, depreciation, budget, customs and monetary policy of the state).
External financing involves the use of funds from the state, financial and credit organizations, non-financial companies and citizens. In addition, it involves the use of financial resources of the founders of the enterprise. Such attraction of the necessary financial resources is often the most preferable, as it ensures the financial independence of the enterprise and facilitates the conditions for obtaining bank loans in the future.
Internal sources of financing the enterprise's activities
The main internal sources of financing the activities of entrepreneurial firms are profits and depreciation charges. Profit as an economic category reflects the net income created in the sphere of material production in the process of entrepreneurial activity, and performs certain functions.
First of all, profit characterizes the economic effect obtained as a result of the activities of a business firm.
Profit also performs a social function, since it is one of the sources for the formation of budgets at different levels. It goes to budgets in the form of taxes and, along with other revenues, is used to finance public needs, ensure that the state fulfills its functions, and state investment, production, scientific, technical and social programs. The social function of profit is also manifested in the fact that it serves as a source of charitable activities of the company, aimed at financing certain non-profit organizations, social institutions, and providing material assistance to certain categories of citizens.
The stimulating function of profit is manifested in the fact that profit is both a financial result and the main element of the company’s financial resources. Indeed, profit is the main internal source of the formation of a company’s financial resources that ensure its development. The higher the level of profit generation of an enterprise in the process of its economic activities, the less its need to attract financial resources from external sources and the higher the level of self-financing for the development of the enterprise, ensuring the implementation of the strategic goals of this development. At the same time, unlike other internal sources of formation of a company’s financial resources, profit is a constantly reproducible source, and its reproduction in conditions of successful management is carried out on an expanded basis.
Profit is the main source of increasing the market value of a company. The ability to self-increase the value of capital is ensured by capitalizing part of the profit received by the company. The higher the amount and level of capitalization of the profit received by a company, the more the value of its net assets increases, and, accordingly, the market value of the company as a whole, determined during its sale, merger, acquisition and in other cases.
Profit is the main protective mechanism that protects a company from the threat of bankruptcy. Although the threat of bankruptcy may arise even in conditions of profitable economic activity of a company, other things being equal, the company is much more successful and quickly emerges from a crisis state with a high level of profit. By capitalizing the profits received, the company can quickly increase the share of highly liquid assets, increase the share of equity capital with a corresponding decrease in the amount of borrowed funds used, and also form reserve financial funds.
Thus, in a market economy, the importance of profit is enormous. The desire to make a profit directs commodity producers to increase the volume of production of products needed by the consumer and reduce production costs. For entrepreneurial firms, profit is an incentive to invest in areas of activity that generate profit.
Profit is the final result of a company's production and economic activities, an indicator of its efficiency, a source of funds for investments, the formation of special funds, as well as payments to the budget. Making a profit is the main goal of a business organization.
The total amount of profit (loss) received by an enterprise for a certain period, i.e. gross profit, consists of:
P profit (loss) from sales of products, services, work performed;
P profit (loss) from other sales;
P profit (loss) from non-operating operations.
Profit (loss) from sales of products (works, services). It is defined as the difference between revenue from the sale of products (works, services) without value added tax and excise taxes and the costs of production and sales included in the cost of products (works, services).
Profit (loss) from other sales. An enterprise may develop excess material assets as a result of changes in production volume, deficiencies in the supply system, sales and other reasons. Long-term storage of these valuables in conditions of inflation leads to the fact that the proceeds from their sale will be lower than the purchase prices. Therefore, from the sale of unnecessary inventory items, not only profits are generated, but also losses.
As for the sale of excess fixed assets, the profit from this sale is calculated as the difference between the sale price and the initial (or residual) value of the assets, which increases by the corresponding index, legally established depending on the rate of inflation.
Profit (loss) from non-operating operations. It is calculated as the difference between income and expenses for non-operating operations. The composition of income (expenses) from non-operating operations includes income received from equity participation in the activities of other enterprises, from leasing property, income (dividends, interest) on shares, bonds and other securities owned by the enterprise, profit received by an investor when execution of a production sharing agreement, as well as other income (expenses) from operations not directly related to the production of products, services, performance of work, or sale of property.
An important role in the composition of internal sources of financing is also played by depreciation charges, which represent the monetary expression of the cost of depreciation of fixed assets and intangible assets and are an internal source of financing for both simple and expanded reproduction. Objects for calculating depreciation are fixed assets that are in the company under the right of ownership, economic management, and operational management.
Attracting bank loans
The enterprise's needs for one-time funds are also satisfied by obtaining a loan from a bank. Lending is one of the forms of financial support for entrepreneurial activity. It is carried out on the basis of establishing financial relationships between an enterprise and a credit institution by concluding relevant agreements between them. The main one is the loan agreement, which creates the legal prerequisites for the security of loans, their timely repayment and payment of interest.
In economic theory, loan capital is traditionally viewed as a set of funds transferred on a repayable basis for temporary use for a fee in the form of interest. Based on this, a bank loan is funds provided by a bank to a business firm for targeted use for a specified period at a certain interest rate. Lending to enterprises is carried out on the basis of certain principles.
The principle of repayment means that financial resources received from the lender are subject to return or repayment by the borrower in full.
The principle of urgency means the need to repay the loan within a precisely defined period, and not at any time convenient for the borrowing company, i.e. the loan is issued for a certain period. The term of use of the loan depends on the duration of the actual need for the loan.
The payment principle means that a loan is provided to the borrower with the condition that it be repaid with interest, which forms the profit of the credit institution.
The principle of material security of a loan expresses the need to ensure the protection of the property interests of the lender in the event of a possible violation by the borrowing company of its obligations and finds practical application in such forms of lending as loans secured by collateral or financial guarantees. 176
The principle of the targeted nature of a loan applies to many credit transactions and is expressed in the need for the targeted use of financial resources received from the lender. This principle finds practical expression in the corresponding section of the loan agreement, which establishes the specific purpose of the loan issued. Violation of the obligation to use the loan for the intended purpose may become the basis for early revocation of the loan or the introduction of increased loan interest.
Main types of bank loan
The peculiarity of bank lending at the present stage of development of the Russian economy is that this loan has a broad target orientation and is attracted in a wide variety of forms. In recent years, both domestic and foreign banks have been involved in lending to business firms. A bank loan can be classified based on various characteristics, which are shown in Fig. 4.3.
Based on the loan repayment period specified in the loan agreement, the following are distinguished: on-call loans;
Short-term loans;
Medium-term loans;
Long-term loans.
The peculiarity of an on-call loan is that it is provided to the borrowing company without specifying the period of its use with the obligation of the borrower to repay it upon the first demand of the lender. Such a loan is repayable within a fixed period upon receipt of official notification from the lender. Currently, on-call credit is almost never used not only in Russia, but also in most countries, since it requires relatively stable conditions in the loan capital market and in the economy as a whole.
Long-term loans are used, as a rule, for investment purposes. Like medium-term ones, they service the movement of fixed assets, characterized by large volumes of transferred credit resources.
According to the method of loan repayment, there are:
P loans repaid in a lump sum;
Loans repayable in installments.
Loans repaid in a lump sum by the borrowing company are a traditional form of repayment of short-term loans. In the case of long-term and sometimes medium-term loans, a method of repaying the loan is used, such as installments. In this case, the specific terms of repayment are determined by the loan agreement.
According to the method of charging loan interest, there are:
P loans, the interest on which is paid at the time of its total repayment;
P loans, the interest on which is paid in equal installments by the borrower throughout the entire term of the loan agreement;
P loans, the interest on which is retained by the bank at the time of the direct issuance of the loan to the borrowing company.
The first form of charging interest is traditional for a market economy when issuing short-term loans and is the most functional in terms of ease of calculation. The second form is used for medium-long-term lending. The latter form of charging interest on loans is not typical for a developed market economy and is used in very rare cases.
Depending on the availability of collateral, there are:
P trust loans (bank);
P secured loans;
P loans under financial guarantees of third parties.
The only form of security for a trust loan is a loan agreement. Such loans are usually used in the process of lending to regular customers who enjoy the full confidence of the bank. As a rule, a bank loan is provided by a commercial bank that provides cash and settlement services to the company. Although formally it is unsecured, it is actually secured by the size of the company’s receivables and its funds in the current and other accounts in the same bank.
Secured loans are the main type of modern bank loan. In domestic conditions, the main problem when applying for secured loans is the procedure for assessing the value of property due to the incompleteness of the process of forming the mortgage and stock markets. Loans issued under financial guarantees of third parties have become widespread, primarily in the field of long-term lending.
The real expression of a financial guarantee is a legally formalized obligation on the part of the guarantor to compensate for the damage actually caused to the lender if the borrower violates the terms of the loan.
According to their intended purpose, they are distinguished:
P loans of a general nature;
P targeted loans.
The first loans are used by the borrower at his own discretion to meet the needs for financial resources. In modern economic conditions they have a very limited distribution. Basically, loans issued by banks are targeted.
Commercial lending to an organization
In the process of entrepreneurial activity, organizations carry out mutual lending. This happens due to the time difference between the shipment of products, goods, performance of work, provision of services and their actual payment. Therefore, in the cash flow of enterprises, along with bank loans, there are funds from other creditors, including supplier enterprises and regular business partners in commercial transactions.
In Art. 823 of the Civil Code of the Russian Federation establishes that contracts, the execution of which is associated with the transfer into the ownership of another party of amounts of money or other things determined by generic characteristics, may provide for the provision of a loan, including in the form of an advance, prepayment, deferment and installment payment for goods, work or services.
With a commercial loan, the purchase and sale transaction is associated with a credit transaction; the end of the trading transaction coincides with the beginning of the credit transaction, which will be completed when the borrower repays the loan debt. Thus, the movement of commodity capital is accompanied by the movement of loan capital. Thus, commercial credit is a commodity form of credit. For the supplier company, a credit transaction not only speeds up sales (the buyer purchases goods), but also brings additional income in the form of interest, which is included in the price of goods sold and the amount of the bill.
The use of a commercial loan facilitates the sale of goods, helps to accelerate the turnover of working capital, which leads to a reduction in the enterprise’s need for credit resources and cash. In addition, the cost of a commercial loan is usually significantly lower than the cost of a financial loan in all its forms. The advantages of this type of lending also include the fact that it is characterized by a fairly simple registration mechanism in comparison with other types of loans that business firms can use. The advantages of a commercial loan also lie in the speed of providing funds in commodity form, in expanding the ability of enterprises to maneuver working capital, and in providing financial support for enterprises to each other. For many small businesses, commercial credit is the most important source of financing.
The disadvantages of a commercial loan include the risk for the supplier when the price of the goods changes, the buyer fails to meet payment deadlines, the buyer goes bankrupt, and also the fact that this type of loan is provided for a very short period, the period of its provision is usually limited to several months.
There are several distinctive features of a commercial loan that fundamentally distinguish it from a bank loan:
The role of lender in commercial lending is not from specialized credit and financial organizations, but from business firms associated with the production or sale of goods or services;
It is provided exclusively in commodity form;
P the average cost of a commercial loan is always lower than the average interest rate on bank loans for the corresponding period of time;
The commercial loan fee is usually included in the price of the product and is not specifically determined, for example, through a fixed percentage of the base amount.
In economic practice, there are several types of commercial loans, the main ones are shown in Fig. 4.4.
 Rice. 4.4. Main types of commercial loan |
A commercial loan with deferred payment under the terms of the contract has become most widespread in economic practice of both domestic and foreign enterprises. This loan is subject to the terms of the contract for the supply of goods, which is concluded by the supplier and the buyer and does not require special registration. After shipping the product, the supplier issues an invoice indicating the size, price, value, delivery terms and payment term. This invoice is the basis for the buyer to provide a loan.
A commercial loan on an open account is used in the business relations of a company with its regular suppliers for multiple deliveries of a pre-agreed list of products in small quantities. The conditions for providing such a commercial loan are also stipulated in the contract for the supply of products. In this case, the supplier company debits the cost of the shipped goods to the account opened for the buyer company, which repays its debt within the stipulated time frame.
Commercial loan with debt registration by promissory note. This method of obtaining a loan is that the buyer company, having received the goods, issues a bill of exchange indicating the payment period. This form of commercial loan is the most promising. Bill turnover on a commercial loan is serviced by promissory notes and bills of exchange.
A commercial loan in the form of consignment is a type of commission transaction in which the supplier company ships goods to the warehouse of a trading enterprise with instructions to sell it. Settlements with the supplier are made only after the delivered goods are sold.
It should be noted that in Russian economic conditions such a form of lending as a commercial loan is limited. Its spread is objectively hampered by such factors as unreliable partnerships, shortcomings of economic law, and inflation.
Investment tax credit
An investment tax credit is a form of external financing for the activities of entrepreneurial firms. In accordance with Art. 66 of the Tax Code of the Russian Federation, an investment tax credit is a change in the tax payment period in which an organization, if there are appropriate grounds, is given the opportunity, within a certain period and within certain limits, to reduce its tax payments with subsequent stage-by-stage payment of the loan amount and accrued interest. This loan can be provided to a business firm for income tax, as well as for regional and local taxes for a period of 1 to 5 years. This form of credit can be provided to a company that is a taxpayer in the following cases:
When this company carries out research or development work or technical re-equipment of its own production, including those aimed at creating jobs for people with disabilities or protecting the environment from pollution by industrial waste;
P when this company carries out implementation or innovation activities, including when creating new or improving existing technologies, creating new types of raw materials or materials;
In the event that this company carries out a particularly important order for the socio-economic development of the region or provides particularly important services to the population;
Fulfillment by the organization of the state defense order.
Factoring as a form of financing
One of the methods of financing entrepreneurial activity is factoring operations - a type of trade commission operation. Factoring is the assignment to a bank or a specialized factoring company of unpaid debt claims (receivables) arising between counterparties in the process of selling goods and services on the terms of a commercial loan, in combination with elements of accounting, information, sales, insurance, legal and other services of the supplier company.
There are three parties involved in factoring operations:
A factoring company or a bank's factoring department is a specialized institution that purchases claims from its clients for their customers. In fact, the purchase of receivables and financing of client firms occurs;
P client company (supplier of goods, creditor) - a company entering into an agreement with a factoring company;
The borrowing company is the buyer of the goods.
Factoring operations help speed up settlements, save the company's working capital, and also accelerate the turnover of the company's working capital. Factoring services are most effective for small and medium-sized companies that traditionally experience financial difficulties due to late repayment of receivables and which are limited in obtaining a bank loan.
Leasing as a type of investment activity
The legal basis for leasing is established by the Civil Code of the Russian Federation (Chapter 34, paragraph 6) and the Federal Law of October 29, 1998 No. 164-FZ “On financial lease (leasing)” (hereinafter referred to as the Leasing Law). The law determines the legal status of leasing entities, forms, types and types of leasing, legal and economic foundations of leasing, measures of state support for leasing activities.
Leasing is a set of economic and legal relations arising in connection with the implementation of a leasing agreement, including the acquisition of the leased asset. Leasing activity is a type of investment activity for the acquisition of property and leasing it. The subject of leasing can be any non-consumable things, including enterprises and other property complexes, buildings, structures, equipment, vehicles and other movable and immovable property that can be used for business activities. The subject of leasing cannot be land plots and other natural objects, the free circulation of which is prohibited by federal laws or for which a special procedure for circulation has been established.
A leasing agreement is an agreement under which the lessor (lessor) undertakes to acquire ownership of the property specified by the lessee (lessee) from a seller specified by him and to provide this property to the lessee for a fee for temporary possession and use. The leasing agreement may provide that the choice of the seller and the purchased property is made by the lessor. The leasing agreement may include terms providing for the provision of additional services and additional work. Additional services (work) are services (work) of any kind provided by the lessor both before the start of use and during the use of the leased asset by the lessee and directly related to the implementation of the leasing agreement. The list, volume and cost of additional services (work) are determined by agreement of the parties.
Leasing is a direct investment activity.
The subjects of leasing are the lessor, the lessee, and the seller (supplier). Lessor - an individual or legal entity who, at the expense of borrowed and (or) own funds, acquires ownership of property during the implementation of a leasing agreement and provides it as a leased asset to the lessee for a certain fee, for a certain period and on certain conditions for temporary possession and for use with or without transfer to the lessee of ownership of the leased item. Lessee is an individual or legal entity who, in accordance with the leasing agreement, is obliged to accept the leased asset for a certain fee, for a certain period and under certain conditions for temporary possession and use in accordance with the leasing agreement.
Seller is an individual or legal entity who, in accordance with the purchase and sale agreement with the lessor, sells to the lessor within the period specified in the agreement the property that is the subject of leasing. The seller is obliged to transfer the leased item to the lessor or lessee in accordance with the terms of the purchase and sale agreement. The seller can simultaneously act as a lessee within the same leasing legal relationship.
The main forms of leasing are domestic leasing and international leasing. When carrying out domestic leasing, the lessor and the lessee are residents of the Russian Federation. When carrying out international leasing, the lessor or lessee are non-residents of the Russian Federation. Subleasing is a type of sublease of a leased asset, in which the lessee under a leasing agreement transfers to third parties (lessees under a subleasing agreement) for possession and use for a fee and for a period in accordance with the terms of the subleasing agreement, the property previously received from the lessor under the leasing agreement and constituting the subject leasing To transfer the leased asset into subleasing, a mandatory condition is the consent of the lessor, expressed in writing.
Introduction
Currently, during the period of growth in the production of goods and services in a number of key sectors of the economy, ensuring adequate financing of the activities of companies is among the top priorities.
Each company is a self-sustaining or self-financing system that ensures the profitable operation of the company. In this regard, the organization’s sources of financing become of great importance.
The topic of the course work is “ External sources of financing for business activities and their effective use».
The management of each company must have clear ideas from which sources of resources it will carry out its work, and in what areas of activity it will invest its capital. Thus, the topic of the course work is relevant, since the financial condition of the company and the efficiency of its activities depend on how much capital is available to the enterprise, how optimal its structure is and how expediently it is used.
In a market economy, external sources of financial resources are especially significant, since in practice organizations cannot effectively carry out their activities without attracting borrowed funds. Debt capital is a catalyst for business processes that allows companies to increase profits and the value of organizations, and this is the significance of the research topic.
Interest in studying the topic of the course work is reflected in numerous studies by Russian and foreign authors, such as Kovalev V.V., Morozov E.M., Gorfinkel V.Ya and others.
The object of the study is PJSC KAMAZ.
The subject of the study is external sources of financing for entrepreneurial activities.
The purpose of the course work is research in External sources of financing business activities and their effective use using the example of KAMAZ PJSC.
Based on the purpose of the study, the following tasks were set in the work:
Consider the essence and classification of sources of financing for business activities.
Explore external sources of financing for business activities.
Analysis and selection of external sources of financing for business activities.
Describe the activities of KAMAZ PJSC.
Conduct an analysis of external sources of business activity of KAMAZ PJSC.
Empirical base of the study: legislative and regulatory acts, financial statements of KAMAZ PJSC for 2014 – 2015, charter of the organization.
The main methods of processing this: analytical and comparative methods, as well as observation and survey, as well as the method of analyzing financial ratios.
The course work consists of an introduction, two chapters, a conclusion and an appendix.
Theoretical foundations of external sources of financing for business activities
The place of external sources in financing enterprise assets
Figure 1.1 – Business financing goals
As a process, financing develops on the basis of tactics and strategy. Tactics characterize the conditions and parameters of short-term financing. Strategy establishes the conditions and parameters of long-term financing. In other words, financing is carried outby organizing short-term and long-term financing.
Short-term financing is used to replenish working capital through internal financing and (or) short-term lending.Long-term financing is used for capital investments that are important for the growth and development of the company.
External financing implies the use e e financial firms;us e e stores; will complement e private deposits of the establishment e parents. Figure 1.2 shows the main sources of external financing.
Figure 1.2 – Sources of financing for the organization.
Currently, in a market economy, a company’s production and economic activities do not exist without the use of borrowed funds: borrowed funds from other companies; funds from the issue and sale of shares and bonds of the company; budgetary allocations on a repayable basis and others.
Borrowed sources are funds raised on the terms of repayment (funds must be returned to the lender without fail), urgency (funds are raised for a specific period) and payment (funds are raised at a certain percentage).
Attracted sources are funds raised from the market through the issue of shares, in the form of charitable contributions, scientific grants, as well as funds allocated by budgets of different levels.
Attracting borrowed funds helps the company speed up the turnover of working capital, increase the volume of business operations, and reduce the volume of work in progress. Thus, when forming a rational structure of the organization's liabilities, it is necessary to take into account the data presented in Figure 1.3.
Figure 1.3 – Conditions for the formation of a rational structure of an organization’s liabilities
Thus, it can be said that in external financing involves the use of funds from the state, financial and credit companies, non-financial firms and citizens, as well as the use of monetary resources from the founders of the organization. This attraction of financial resources is often the most desirable because it ensures the financial independence of the company and makes it easier to obtain bank loans.
Conditions for attracting long-term external sources
Figure 1.4 shows sources of external financing. Let's look at them in detail.
Figure 1.4 – Sources of external financing
Source participants - creditors - banks are the main supplier of business and other loans. The main form of credit financing is an investment loan from banks and targeted bond loans.
The advantages of investment loans are presented in Figure 1.5.
Figure 1.5 – Advantages of an investment loan
The disadvantages of an investment loan lie in the subtleties in the behavior of the bank after signing the agreement. For example, some firms are faced with the problem when all property becomes collateral for a financial company, which can complicate the organization's work. These loans are issued in the form of a term loan with a repayment period of three to five years based on the appropriate loan agreement (agreement). Appendix A presents the conditions for obtaining an investment loan. To finance investment projects, one of the types of urgent loans is used - a loan secured by real estate (mortgage loan). The interest rate on investment loans in most cases takes into account the risk of the investment project and is found by increasing the interest rate base by the risk premium for the project being studied.
A targeted bond loan is understood as the issue by the enterprise initiating the project of corporate bonds of funds from the placement, which are necessary to finance a specific investment project.
The advantages of bond loans are presented in Figure 1.6.
Figure 1.6 – Advantages of bond loans
Disadvantages of a targeted bond loan: difficulties and additional costs in organizing and servicing loans; an increased threshold for the minimum issue volume, which justifies additional costs and is important for the market circulation of bonds, and with a closed subscription is an order of magnitude less; presentation of special requirements for collateral; greater requirements for the issuer regarding the transparency of financial reporting; Delays in interest payments or failure to repay debt on time could negatively impact a company's public credit history and lower its rating.
Source participants creditors leasing companies - professional leasing service provider.
Figure 1.7 – Advantages of leasing
Some banks conduct a program of financial support for small and medium-sized enterprises in the form of factoring. Types of factoring are presented in table 1.1.
Table 1.1 – Types of factoring
Source participants - creditors - state. The state creates programs to support small businesses, which include:
– a program of Vnesheconombank, which consists in the fact that this bank issues targeted loans to selected banks and non-banking infrastructure entities that take part in financing small businesses.
– subordinated loans to second-tier bank capital, provided that banks have a portfolio of loans to priority sectors, including small businesses.
Let us consider in detail the participants - the sources of investors (Table 1.2). The main external sources of long-term financing for the company are the issue of additional shares, the issue of bonds and the attraction of credit funds.
Table 1.2 – Source participants – investors
Corporatization is equity financing of investment projects, which is carried out in several forms, presented in Figure 1.8.
Figure 1.8 – Forms of corporatization
Additional issue of shares is used to implement large-scale investment projects, investment development programs, industry or regional diversification of investment activities. In this case, investment resources are attracted through the additional issue of ordinary and preferred shares. According to Russian legislation, the par value of issued preference shares must not exceed 25% of the authorized capital of the joint-stock company.
The advantages of corporatization are presented in Figure 1.9.
Figure 1.9 – Advantages of corporatization
A securities prospectus is an official document that is prepared by the issuing company and approved by its Board of Directors; it includes information about the issuer and its securities. The role of the prospectus: on the one hand, it is used to stimulate sales of issued securities; on the other hand, it is important to disclose all information about the company (in particular, risk factors). Federal Law No. 39-FZ dated April 22, 1996 (as amended July 3, 2016) “On the Securities Market” in Article 22 provides information about this prospectus.
Disadvantage of this method:
– a joint stock company receives investment resources as a result of completing the placement of shares, which requires time, additional expenses, evidence of the company’s financial stability, information transparency, and others;
– the process of additional issue of shares is associated with registration, listing, and large transaction costs;
– when carrying out the issue procedure, the issuing company bears the costs of paying for the services of professional participants in the securities market, performing the functions of an underwriter and investment consultant, as well as for registering the issue. Additional issue of shares leads to an increase in the share capital of the enterprise. A decision on an additional issue may lead to a dilution of the participation interests of previous shareholders in the authorized capital and a decrease in their income.
Venture funding– these are long-term, high-risk investments in the equity capital of newly formed high-tech promising companies that are focused on the development and production of high-tech products, for their development and expansion, in order to profit from the increase in the value of invested funds.Venture investments take the form of purchasing shares of venture companies that are not yet listed on stock exchanges, as well as providing loans or other forms. In most cases, venture capital comes in the form of equity capital.
The government provides funds to public sector companies in the form of capital investments. Government financing differs from a bank loan in that the company receives funds free of charge and irrevocably. One type of such financing is a government order. Another source of financing for an enterprise is budget financing, which means receiving funds from budgets of different levels. An indirect form of government financing is tax incentives that are issued to companies.
Thus, it can be said that external financing implies the useexternal sources, namely e dstv of financial institutions; n e financial firms;us e leniya;state; foreign inv e stores; will complement e private deposits of the establishment e parents External borrowing occurs due to the mobilization of attracted and borrowed funds. The essence of the company's borrowed capital is considered in the implementation of operational, coordination, control and regulatory functions of the process of attracting external sources of financing. The enterprise management policy must quickly respond to changes in internal and external environmental factors, in particular: changes in borrowing conditions, changes in borrowing methods, and the emergence of new ways to attract borrowed sources of financing.
Analysis and selection of external sources of financing for business activities
With the transition of the Russian economy to market economic principles, enterprises faced the problem of providing production with financial resources. If in a planned economy, enterprises, in case of failure, could count on the help of the state with its system of redistribution of financial resources, then in modern economic conditions the solution to the issue of survival and prosperity is in the enterprise’s own hands.
Financing of business firms is a set of forms and methods, principles and conditions for financial support for simple and expanded reproduction. Financing refers to the process of generating funds or, more broadly, the process of generating capital for a firm in all its forms. The concept of “financing” is quite closely related to the concept of “investing”; if financing is the formation of funds, then investing is their use. Both concepts are interrelated, but the first precedes the second. It is impossible for a company to plan any investments without having sources of financing. At the same time, the formation of a company's financial resources occurs, as a rule, taking into account the plan for their use.
When choosing sources of financing for an enterprise, it is necessary to solve five main problems:
Determine short- and long-term capital needs;
Identify possible changes in the composition of assets and capital in order to determine their optimal composition and structure;
Ensure continued solvency and, therefore, financial stability;
Use your own and borrowed funds with maximum profit;
Reduce the cost of financing business activities.
The financial resources of a business firm can be defined as the totality of its own cash income and outside receipts at the disposal of the company and intended to fulfill its financial obligations, finance current costs and costs associated with the expansion of production.
Capital is a stock of economic goods accumulated through savings in the form of cash and real capital goods, involved by its owners in the economic process as an investment resource and a factor of production in order to generate income, the functioning of which in the economic system is based on market principles and is associated with time factors, risk and liquidity.
The term “capital” comes from the Latin “capitalis”, which means basic, main.
The financial resources of a business firm, by their origin, are divided into own and borrowed. Own financial resources are formed from internal and external sources. Among internal sources, the main place belongs to profit remaining at the disposal of the company, which is distributed by decision of the management bodies.
An important role in the composition of internal sources is also played by depreciation charges, which represent the monetary expression of the cost of depreciation of fixed assets and intangible assets and are an internal source of financing for both simple and expanded reproduction.
As part of external (attracted) sources for the formation of own financial resources, the main role belongs to the additional issue of securities, through which the company’s share capital is increased, as well as the attraction of additional share capital through additional contributions to the authorized capital.
For some enterprises, an additional source of formation of their own financial resources is the gratuitous financial assistance provided to them. In particular, these can be budgetary allocations on a non-repayable basis; as a rule, they are allocated to finance government orders, individual socially significant investment programs, or as state support for enterprises whose production is of national importance.
Other external sources include tangible and intangible assets donated to firms and included in their balance sheet.
One of the main characteristics of the classification of an enterprise’s capital is the characteristic of the title of ownership of the capital being formed. According to the title of ownership, the capital formed by an enterprise is divided into two main types - own and borrowed. In the system of sources of attracting capital, this division is decisive.
Equity capital characterizes the total value of the enterprise's funds owned by it and used by it to form a certain part of its assets. This part of the assets, formed from the equity capital invested in them, represents the net assets of the enterprise.
Borrowed capital characterizes funds or other property assets raised to finance the development of an enterprise on a repayable basis. All forms of borrowed capital used by an enterprise represent its financial obligations that must be repaid within the stipulated time frame.
Enterprise capital management is aimed at solving the following main tasks:
Formation of a sufficient amount of capital to ensure the necessary pace of economic development of the enterprise;
Optimization of the distribution of generated capital by type of activity and areas of use;
Providing conditions for achieving maximum return on capital at the envisaged level of financial risk;
Ensuring minimization of financial risk associated with the use of capital at the envisaged level of its profitability;
Ensuring the constant financial balance of the enterprise in the process of its development;
Ensuring a sufficient level of financial control over the enterprise on the part of its founders;
Ensuring sufficient financial flexibility of the enterprise;
Optimization of capital turnover;
Ensuring timely reinvestment of capital.
Let's consider the classification of financial resources of enterprises based on the sources of their formation (Fig. 1.1). The basis is the division of financial resources of enterprises into their own and attracted ones.
Rice. 1.1
Own financial resources of enterprises are formed from profits from sales of products (works, services), profits from other sales, and other operating income. The sources of own financial resources also include the personal funds of the owner and initial contributions of the founders. Enterprises and organizations rely primarily on their own sources in their activities. However, it should be noted that this source limits the growth of the enterprise, since it depends on the rate of growth of profits (owner deposits) Belovitskaya A.A. Financial support for the activities of small businesses / Abstract of thesis. ...cand. eq. Sci. Saratov, 2008..
In accordance with this classification, the attracted financial resources of enterprises are divided into three large groups: borrowed funds, government support funds and funds coming from third parties.
Attracted financial resources are formed on the basis of the redistribution of funds between business entities and characterize the degree of interaction of the enterprise with them. The sources of borrowed financial resources of enterprises are loans from commercial banks and non-banking organizations, loans, and private loans.
Financial resources in the form of government support can be allocated to a special group. Today, the state is beginning to increasingly influence the activities and financial stability of enterprises and organizations, both in the form of direct and indirect financial support in order to encourage and stimulate business investment activity. In this regard, it is advisable to allocate this type of financial resources into a separate group, including due to the fact that these sources often have a non-market nature associated with protectionist government policy, and also pursue social, political and other goals. The source of their formation is funds that are provided on a reimbursable basis and require their return - budget loans, interest-free loans, short-term loans, lending programs. Sources also include funds provided free of charge for the purpose of more efficient redistribution of resources between sectors of the economy, as well as for solving other socio-economic problems. Among these forms of support, one can highlight subventions, subsidies, subsidies (budget allocations, budget investments).
The source of funds raised from third parties are resources received from legal entities and individuals, receipts from industry and research funds, charitable contributions, financial resources coming from unions, associations, industry regional structures, grants from public organizations, international organizations, charitable foundations and others. Braschey A.A. Problems of financing small businesses in Russia at the present stage / Finance, money circulation and credit: Almanac. Issue 2. - Saratov: SGSEU, 2007.
This classification reflects the specifics of financial support for business activities, because own funds are the backbone of enterprises’ activities, and attracted funds from state support are primarily focused on supporting business entities. Also, this classification determines the nature of interaction of enterprises and organizations with the external environment and facilitates the management of financial resources.
Lecture objectives: study of financial relations,
Emerging in entrepreneurial
Activities; funding sources
Entrepreneurial activity.
Questions
1 Financial environment of the enterprise,
2 Sources of financing for business activities.
1. An enterprise-type enterprise is an element of the economic system and enters into certain relationships with business partners, budgets at various levels, capital owners and other entities. Business activities take place within a specific financial system, which consists of a number of institutions and markets serving organizations, individuals and the state.
In the process of formation and use of financial resources, the enterprise enters into financial relations with other market entities. It is these relationships that constitute the essence of enterprise finance. Enterprise finance represent monetary relations arising in the process of its production and economic activities and associated with the formation and distribution of its financial resources. Figure 1 shows enlarged groups of financial relations of an enterprise and the accompanying funds of funds. The main directions of financial activity of any economic entity are the formation and use of monetary funds, through which the production and economic activities of the enterprise are provided with monetary funds and simple and expanded reproduction is carried out.
The implementation of financial relations presupposes the presence of financial resources at the enterprise. Financial resources- this is a set of funds in the form of income and external receipts intended to fulfill financial obligations and carry out costs to ensure expanded reproduction. The formation of financial resources is carried out from various sources, which can be divided into internal and external. Internal sources are formed at the expense of own and equivalent funds and are associated with business results, external – sources of resources for the enterprise from the outside. The composition of financial resources coming from internal and external sources is shown in Figure 1.
Figure 1 – Financial relations of the enterprise and funds
Figure 2 – Composition of financial resources
2 . The main forms of business investment are credit, collateral, leasing and factoring. In Kazakhstan, unlike most developed countries, when we talk about credit institutions, we mainly mean banks. Attracting bank lending (for production and social needs) is carried out in strict compliance with certain principles: repayment, payment and urgency, which are the main element of the lending system, as they reflect the essence and content loan.
Loan repayment means the obligation to repay the principal debt to the lender on the agreed terms. The urgency of the loan means that the loan must be repaid to the lender not at any time suitable for the borrower, but within a pre-agreed loan repayment period. The loan term is the maximum time during which the loan funds are at the disposal of the borrower. Violation of this principle by the borrower entails the application of certain sanctions in the form of an increase in the interest charged, and then the presentation of financial claims in court.
A bank loan typically incurs a fee in the form of interest. The interest rate is set by the parties to the loan agreement.
In addition to the main ones, there are three additional lending principles:
- loan security;
- targeted nature of the loan;
- differentiated nature of the loan.
In world practice, the following types of loans are distinguished: bank, commercial, consumer, state, international and usurious.
A loan is usually classified according to several basic criteria, the most important of which include the category of lender and borrower, as well as the form in which the loan is provided. The classification of bank loans is presented in Figure 3.
One of the most serious problems faced by commercial banks is the risk of non-repayment of loans. Banks strive to minimize this risk using various methods of ensuring (guaranteeing) the repayment of bank loans. Many firms that are unable to obtain a loan without collateral are forced to take out money against pledge. Loan guarantee (collateral) – assets (property) provided by the borrower as collateral to ensure repayment of the loan. If the borrower becomes unable to pay the debt, the lender can sell the collateral and pay off the debt.
The value of collateral from the lender's point of view varies depending on a number of factors: the degree of liquidity of the collateral, the service life of the collateral, and the main (basic) degree of risk associated with the collateral. All this, in turn, determines the potential amount of financing that a company can receive from a lender.
Figure 3 – Classification of bank loans
In theory, a secured (or asset-based) loan is a loan whose payments are guaranteed by any assets or property of the borrower. However, when it comes to a short-term loan, accounts receivable and inventory are used as collateral.
Loans provided against receivables as collateral. One of the most liquid assets of a company is its accounts receivable. Consequently, they provide the maximum guarantee for short-term loans that lenders seek.
When assessing a loan application, the lender analyzes the quality of the company's accounts receivable and determines how much credit can be provided against this collateral. The higher the quality of a firm's receivables, the higher the percentage of their face value pledged as collateral that a lender will be willing to lend. However, the lender is not required to accept all accounts receivable from the borrower as collateral. As a rule, accounts of companies with a low credit rating or no credit rating at all are rejected. Moreover, based on analysis of the time interval between the date of sale and the current moment Invoices that are overdue, for example by one month, are also often not accepted. Further, government and foreign accounts are generally considered ineligible. Depending on the quality of the bills accepted, the lender will typically lend money between 50% and 80% of its face value.
To properly organize financing for business activities, sources of financing should be classified. Note that the classification of funding sources in Russian practice differs from foreign ones. In Russia, all sources of financing business activities are divided into four groups: 1) own funds of enterprises and organizations; 2) borrowed funds; 3) borrowed funds; 4) state budget funds.
To your own In this case, the funds of the enterprise include: authorized capital (funds from the sale of shares and share contributions of participants or founders); revenues from sales; depreciation deductions; net profit of the enterprise; reserves accumulated by the enterprise; other contributions from legal entities and individuals (targeted financing, donations, charitable contributions).
To those attracted funds include: bank loans; borrowed funds received from the issue of bonds; funds received from the issue of shares and other securities; accounts payable
By place of origin The financial resources of the enterprise are classified into:
internal financing;
external financing.
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.
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