ABME 10 - Module I

Financial Management

entrepreneurs have two decisions which are crucial in the business

Financial decisions

where to source the fund

Investment decisions

where to invest the funds

Debt Financing

borrowing of money and paying it back with interest

Equity Financing

selling a portion of the company in exchange for the capital needed

Debt

• Money loaned to a business to be repaid within a period

• Paid with Interest Rates

• Lender is independent and have no control in business

• No profit sharing

Equity

• Money invested in return of a share in the profits

• Paid in DIVIDENDS

• Investor becomes a part-owner

• May have sharing of profits

Personal contributions

pooled from the savings of the entrepreneur himself

Friends and Relatives

Love Money

Entrepreneurs can borrow or seek equity to secure capital from their PERSONAL networks

Financial Institutions

organizations which business model is earning by managing people’s money.

Government and Non-Profit Organization Grants

grants provided by the public sector as loans to support entrepreneurs

Venture Capitalists

businesses, firms or individuals that manages pooled funds and invest it to start-ups

sees the possibility of growth of the business, and earn with their share of it.

Angels

individuals, often successful business people who uses their own fund to invest in early-stage companies.

Crowdfunding

capital is raised from contributions of large number of individuals willing to finance new ideas.

Capital Expenditures

expenditures to laid out, create benefits in the future. This includes assets or things which have a useful life.
Includes: Machineries, tools, software, gadgets, equipment, land, vehicle, property

Direct Costs

expenses that are tied directly to the production of goods and delivery of services
Include: Raw Materials, ingredients, packaging supplies, labor

Indirect Costs

The cost of doing business

expenses related to running the business but not directly to the production of goods and services

Working Capital

Funds that will cover expenses that will be incurred initially if it can’t be paid for by the revenues which are yet to be earned.

Initial Investment

encapsulates the amount the entrepreneur will need in setting up the business.

Initial Investment = Capital Expense + Working Capital

Revenue

amount generated by the sale of goods or services

Revenues = Quantity sold * Price

Income

the financial gain computed as the difference between the amount generated and the amount spent in buying, operating, or producing something in a specific period

Income = Revenue - Operating Expense

Return of Investment

This is computed as income for a specific period divided by the Initial Investment

Return of Investment = 100*(Income/Initial Investment)