Financing Sources for Companies and the Implications on their Image

AuthorMihaela Sudacevschi
PositionLecturer Ph.D., Faculty of Economic Sciences, “Nicolae Titulescu” University, Bucharest
Pages324-331

Page 324

Introduction

The financial stock market is extremely important for the development of modern economy, and it contributes to resource transfer, from the companies with surplus to those who seek financing resources for their activities. At this level of the financial market we find the „collection of temporary capital available in economy, it’s reallotment of the insufficiently or inefficiently exploited one at a certain point and even favoring certain sector reorganization”1.

Financing sources of a companies

During the development of a commercial society, an important role is played by financing, respectively the used financing sources. Enterprises can choose from a wide range of financing sources, more or less diversified, depending on the development level of the financial system.

Roughly, a commercial society can choose between the following categories of resources:

• Self-financing

• Discounting the commercial output and selling debts (factoring)

• Issue of financial titles on the capital market

• Loans on the banking market

• Commercial credits

Self-financing is constituted from the financial excess resulting from the commercial society’s activity, which is used for financing subsequent activities.

Self-financing is the main financial resource used by enterprises, many times being the sole source for financing their activity. Depending on the level of necessary financial resources and the commercial society’s capacity to cover this requisite by self-financing, external resources may be used. This position of self-financing – as an indicator in choosing financing sources is based on two elements:

- the number of resources assigned to self-financing emphasizes the performances of the commercial society, being a criterion for assessing the degree of remuneration for investors financing the commercial society;

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- self-financing generates the capacity to reimburse the commercial society’s debts, and the risk fund providers take can be assessed.

As opposed to the other financing sources of a commercial society, self-financing defines a society’s capacity to independently proceed with its activity, generating the reproduction of available capital and ensuring the capacity to reimburse potential loans.

By self-financing, the company can ensure a viable financing policy, being able to increase the capital by reinvesting the resulting capital and at the same time ensuring the long term absorption of active elements, as well as compensation of risks that appear in a society’s activity, for which they create supplies.

Thus, obtained through a profitable activity, self-financing represents a guarantee of autonomy and financial stability for the society, being the starting point in launching any long term business plan. The insufficiency of self-financing would determine a decrement of the possibilities for external financing, given that external fund suppliers will be ready to provide their resources only in the case of proper self-financing.

Discounting the commercial output consists in its being ceased to a beneficiary, in exchange for its value in the moment the operation was executed. This is one of most managers’ favorite transactions, for it manages to obtain funds that do no generate future expenses, as in case of loans.

The issue of securities on the capital market results into the increment of the own capital through capital attraction from outside the society, brought in by holders of available funds, who wish to participate in the society’s capital. These financial resources providers can be both old share holders of the society, and other investors, each of them placing their capital at the society’s disposal and receiving in exchange shares, which prove their participation to the society’s capital.

The reason for which external resources are called upon is the insufficiency of the self-financing resources. But turning to capital increment and the issue of financial titles on the capital market can have both advantages and disadvantages, given that the owners of the company can loose control over it, when new share holders own an important number of shares.

When movable assets are issued, the issue price is smaller than the stock market course, formed on the market through direst report between remand and offer, and greater than the nominal value of the shares. This price is thus established so it is attractive for the potential investors and to cover the company issue costs.

The shares issued for capital increment can be purchased both by the old share holders, and by new share holders. The privilege of the old share holders is constituted by the subscription rights they have based on the number of old shares they own, thus covering the losses brought upon by the issue of new shares. Theoretically, these subscription rights are materialized, in the sense that they can be separated from shares and are rated separately at the stock market. The old share holders, owning subscription rights, shall purchase the new shares at their issue price, whereas the new share holders shall purchases the shares at their issue price, plus a number of subscription rights purchased...

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