Dr. Zulfiqar Hasan

Financing is an important activities of finance. This topic discusses the process of making decision to choose debt financing or equity financing by a business organization. Topic also covers the annual report and its different elements. 

Annual Report

A report issued annually by a corporation to its stockholders is called annual report. An annual report is a brief profile on the health of a company.

Items in An Annual Report:

01. Verbal Section

a.  A letter/Speech from the chairman on the high points of business in the past year with predictions for the next year.

b. Details Report/Company's philosophy: a section that describes how the company does business.

c. An auditors' letter/Certificate confirming that all of the information provided in the report is accurate and has been certified by independent accountants.

02. Data Section: Financial information:

Income Statement: A company's income statement is a record of its earnings or losses for a given period

Balance sheet: provides a snapshot of a firm’s financial position at one point in time.

Statement of retained earnings: shows how much of the firm’s earnings were retained, rather than paid out as dividends.

Statement of cash flows: reports the impact of a firm’s activities on cash flows over a given period of time.

Process of Financing

Financing means collection of capital for the business organization. Fundamental ways of financing are two:

01. Debt Financing and

02. Equity Financing

Debt Financing:

Debt financing means borrowing money that is to be repaid over a period of time, usually with interest.

Debt financing can be either short-term (full repayment due in less than one year) or long-term (repayment due over more than one year.

A type of Financing through the selling of a debt instrument is called Debt Financing

Equity Financing:

Equity financing describes an exchange of money for a share of business ownership. This form of financing allows you to obtain funds without incurring debt; in other words, without having to repay a specific amount of money at any particular time.

The major disadvantage to equity financing is the dilution of your ownership interests and the possible loss of control that may accompany a sharing of ownership with additional investors.

Raising money for company activities by selling common or preferred stock to individual or institutional investors.