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Debt vs. Equity Financing

Debt vs. Equity Financing | Accounting and Finance | Scoop.it

There are several different types of financing that a business can use to operate, each with their own pros and cons. There two main types of financing: equity financing and debt financing. Equity financing is simply funding from the owners of the business. Debt financing is the other form of business financing. There are several forms of debt financing, but they all involve interest and require the debt to be repaid.


Via Peter John Baskerville
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Greg Lustig's curator insight, September 7, 2013 8:49 PM

In the case of equity financing,there are multiple factors that must be considered.The most important is how the valuation of the company is determined.Although a multiple of EBITA works well for established companies,it doesn't acurately reflect the value for new or emerging companies.Also,at issue is whether the company is valued at pre or post investment .A second factor to consider is whether the equity investor intends to be active or passive in regards to management.VC as well as private equity will often demand multiple board positions as well as input on executive management hiries and key management decisions.Thirdly,and perhaps most importantly,the intended holding period for a major investor must be taken into account.Typically,VC and PE both prefer short holding periods of anywhere between 2-5 years.This may not seem like something to be concerned about until your company is faced with the problem of finding the funds necessary for the redemption of the investors shares.Too often valuable assets or the company itself will have to be sold to pay off the investor(s).Lastly,the cost of the invested capital must be considered in comparison to the fixed cost of  alternative debt sources.Although equity looks better on a company's financial statements,VC and PE investors normally are looking for 25%-35% annualized cash on cash returns on a look back basis.Althouth this type of return  maybe possible for high tech startups with patented technology and market leading potential ,it is a very high mountain to climb for most companies.

 

 

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Introduction - Sources of Finance

Introduction - Sources of Finance | Accounting and Finance | Scoop.it

For many businesses, the issue about where to get funds from for starting up, development and expansion can be crucial for the success of the business. It is important, therefore, that you understand the various sources of finance open to a business and are able to assess how appropriate these sources are in relation to the needs of the business. This article by Biz/ed covers them all in great detail.


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Big business has corrupted economics

Big business has corrupted economics | Accounting and Finance | Scoop.it
Aditya Chakrabortty: You know the country is in a financial mess when even establishment figures such as Rachel Lomax are calling for revolutionary thinking...

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The Free-To-Play Triangle [Game Economics]

The Free-To-Play Triangle [Game Economics] | Accounting and Finance | Scoop.it

What Games Are:  "Technically you can charge for everything in every way in a game, but it usually makes the experience hollow. The Free-To-Play Triangle aims to help you keep your game fun" ...


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LedgerSMB - Small Medium Business Accounting and ERP

LedgerSMB - Small Medium Business Accounting and ERP | Accounting and Finance | Scoop.it

"LedgerSMB is a freeware platform that focuses on accounting and ERP features for small businesses. You get the basic Accounts Payable, Accounts Receivable and General Ledger functionality, along with inventory and fixed-assets handling. The accounting features include General Ledger and journal entry to help you manage your accounts, transfer money between them, and get a picture of the general financial health of your business. The sales tools let you track customers, quotes, sales orders and invoices, while the purchasing side lets you track vendors and create purchase orders.


LedgerSMB also handles cash in and cash out and lets you write checks, track receipts, and reconcile your books with bank statements. There are even inventory-management features suitable for light manufacturing so you can track goods and services. Point-of-sale and reporting tools round out the out-of-the-box functionality."


Via Ashok Ramachandran
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Financial Accounting - teaching/learning resources

Financial Accounting - teaching/learning resources | Accounting and Finance | Scoop.it

Comprehensive teaching/learning resources on Financial Accounting from Bized including Lesson Plans, Worksheets, Mind Maps, Case studies, Simulations and Activities.

 

Topics cover Cash Flow, Ratio Analysis, Depreciation, ROCE, Costs, Break-Even, Sources of Finance, Profit and Loss Account


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The Rise And Rise Of Behavioural Economics

Behavioural economics have become an ever more trendy way of explaining the crisis. In this debate speakers demystify the subject and do battle on the merits of its approach and usefulness. The speakers are: Leigh Caldwell chief executive, Inon; Professor Emre Ozdenoren associate professor of economics, London Business School; Dr Stuart Derbyshire senior lecturer, School of Psychology, University of Birmingham and Dr Michael Savage investment banker and writer, financial economics and development.

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