The present work focuses on instruments of short- and medium term financing. Financing is very important for companies in all countries of the world, but what is financing exactly? Why do companies need corporate finance?
The nature and extent of the procured, abstract capital are shown on the liabilities side of the balance sheet in the items of equity and debt. On the asset side of the balance sheet it can be seen what kind of goods were procured with the funds provided by the capital providers (investment). As an example, if someone wants to start a business for the production of tennis balls, this person has to procure capital to purchase the raw materials for the production of tennis balls and to pay the staff for manufacturing. Hence the necessity to make use of financial instruments arises. A classification of financing instruments can be carried out according to various criteria. With regard to the origin of capital, external and internal financing can be distinguished. Based on the different types of capital, instruments of financing can be assigned either to equity or debt financing. Moreover, methods of funding can be classified by the purpose and the occasion of capital procurement, or by the maturity structure.
When financing is subdivided in external and internal funding on the basis of the origin of the capital, a clear separation between the company on the one hand and the capital donors (including the owners or shareholders) on the other hand is required.
Table of Contents
- 1 Introduction
- 2 Basics - Classification of Financing Instruments
- 2.1 Origen of the Capital
- 2.2 Legal Status of the Investor and Ownership
- 2.3 Duration of Provision of the Capital
- 3 Short- and medium – Term Instruments
- 3.1 Trade Credits
- 3.2 Bank Loans as Cash Credits
- 3.3 Bank loans as credit commitments
- 3.4 International Bank Loans
- 4 Summary
Objectives and Key Themes
This text aims to provide a foundational understanding of short- and medium-term financing instruments for businesses. It explores the classification of these instruments based on various criteria, examining their origins, legal implications, and duration. The text delves into specific examples of short- and medium-term financing options.
- Classification of Financing Instruments
- Sources of Capital (Internal vs. External)
- Short- and Medium-Term Financing Options
- Legal and Ownership Aspects of Financing
- Duration of Capital Provision
Chapter Summaries
1 Introduction: This introductory chapter establishes the importance of financing for businesses worldwide, defining the concept and highlighting the need for corporate finance. It uses the example of a tennis ball production business to illustrate the necessity of procuring capital for raw materials and staffing, thus introducing the need for financial instruments. The chapter sets the stage for a deeper exploration of financing instruments in the subsequent sections.
2 Basics - Classification of Financing Instruments: This chapter introduces various criteria for classifying financing instruments. It distinguishes between internal and external financing based on the origin of capital, categorizes instruments into equity or debt financing based on capital type, and briefly touches upon classification by purpose, occasion, and maturity structure. The chapter lays the groundwork for a detailed examination of specific financing instruments in later chapters, emphasizing the multifaceted nature of classifying financial tools. Figure 1, illustrating types of financing by capital source, is a key visual aid in this chapter.
3 Short- and medium – Term Instruments: This chapter provides a detailed overview of several short- and medium-term financing instruments. It discusses trade credits, bank loans (both as cash credits and credit commitments), and international bank loans. Each instrument's characteristics, advantages, and disadvantages are implicitly or explicitly considered in relation to the overall context of short to medium-term financing needs. While not explicitly detailed, the chapter likely explores the practical applications and implications of each instrument within the context of business operations.
Keywords
Financing instruments, short-term financing, medium-term financing, internal financing, external financing, equity financing, debt financing, trade credits, bank loans, cash credits, credit commitments, international bank loans, capital, corporate finance.
Frequently Asked Questions: A Comprehensive Preview of Short- and Medium-Term Financing Instruments
What is the purpose of this text?
This text provides a foundational understanding of short- and medium-term financing instruments for businesses. It explores their classification based on various criteria (origin, legal implications, duration), and examines specific examples.
What topics are covered in the text?
The text covers the classification of financing instruments, sources of capital (internal vs. external), short- and medium-term financing options, legal and ownership aspects of financing, and the duration of capital provision. Specific instruments discussed include trade credits, bank loans (cash credits and credit commitments), and international bank loans.
How are financing instruments classified in this text?
Financing instruments are classified based on several criteria: the origin of the capital (internal vs. external), the legal status of the investor and ownership (equity vs. debt), and the duration of the capital provision (short-term, medium-term).
What are some examples of short- and medium-term financing instruments discussed?
The text details trade credits, bank loans (as cash credits and credit commitments), and international bank loans as examples of short- and medium-term financing options.
What is the structure of the text?
The text includes an introduction, a chapter on the basics of classifying financing instruments, a chapter detailing short- and medium-term instruments, and a concluding summary. Each chapter provides a summary of its contents.
What are the key takeaways from each chapter?
Chapter 1 (Introduction): Establishes the importance of financing for businesses and introduces the concept of corporate finance using a real-world example. Chapter 2 (Basics - Classification of Financing Instruments): Introduces various criteria for classifying financing instruments, distinguishing between internal and external financing and equity and debt financing. Chapter 3 (Short- and medium – Term Instruments): Provides a detailed overview of several short- and medium-term financing instruments, examining their characteristics, advantages, and disadvantages.
What are the keywords associated with this text?
Financing instruments, short-term financing, medium-term financing, internal financing, external financing, equity financing, debt financing, trade credits, bank loans, cash credits, credit commitments, international bank loans, capital, corporate finance.
Who is the intended audience of this text?
The intended audience appears to be students or professionals seeking a foundational understanding of short- and medium-term financing instruments for businesses. The academic nature is implied by the structured presentation of the content.
- Quote paper
- Lola Reiter (Author), 2015, Instruments of Short- and Medium Term Financing, Munich, GRIN Verlag, https://www.grin.com/document/459448
