FINANCIAL INSTRUMENTS
Financial instruments are assets or packages of capital that can be exchanged, such as cash, a contractual right to deliver or receive a financial instrument or evidence of one’s ownership of a company. It is a vital part of every business and the most of the financial instruments provide an effective flow and transfer of capital all over the world’s investors. Nonetheless, to manage a company seldom entails a long or short-term financing. For example, when an invoice is issued on the sale of goods on credit, the company that sold the goods has a financial asset (the receivable, whereas the buyer has to account for a financial liability (the payable).
Therefore, the short-term is a type of finance that can be used by a corporation to improve inventory orders, payrolls, and regular supplies over a period usually a year. It involves commercial paper, promissory notes, letter of credit, et al.
1. Commercial paper is an unsecured and discounted promissory note distributed commonly by a corporation with incredible credit ratings, such as banks, …show more content…
Equity Financing is a way of generating capital by selling company stock, such as common stocks and preferred stocks to investors and in return for the investment, the stockholders gain an ownership interest in the company. For example, at the initial stage, a company will own all the shares of the company, but as business starts to pick up, it will require further capital and the company may seek an outside investor (angel investor or a venture capitalist) to source for equity financing, which will raise the total capital of the company. The entrepreneur will then control a certain percentage, say 70% of the company’s share as well as the investors, say 30% depending on the amount the owner contributed and what the investment worth at the time of financing. They are less risky due to its cash flow commitments, although can result in dissolution of share ownership, reduces earnings and
Financial instruments are assets or packages of capital that can be exchanged, such as cash, a contractual right to deliver or receive a financial instrument or evidence of one’s ownership of a company. It is a vital part of every business and the most of the financial instruments provide an effective flow and transfer of capital all over the world’s investors. Nonetheless, to manage a company seldom entails a long or short-term financing. For example, when an invoice is issued on the sale of goods on credit, the company that sold the goods has a financial asset (the receivable, whereas the buyer has to account for a financial liability (the payable).
Therefore, the short-term is a type of finance that can be used by a corporation to improve inventory orders, payrolls, and regular supplies over a period usually a year. It involves commercial paper, promissory notes, letter of credit, et al.
1. Commercial paper is an unsecured and discounted promissory note distributed commonly by a corporation with incredible credit ratings, such as banks, …show more content…
Equity Financing is a way of generating capital by selling company stock, such as common stocks and preferred stocks to investors and in return for the investment, the stockholders gain an ownership interest in the company. For example, at the initial stage, a company will own all the shares of the company, but as business starts to pick up, it will require further capital and the company may seek an outside investor (angel investor or a venture capitalist) to source for equity financing, which will raise the total capital of the company. The entrepreneur will then control a certain percentage, say 70% of the company’s share as well as the investors, say 30% depending on the amount the owner contributed and what the investment worth at the time of financing. They are less risky due to its cash flow commitments, although can result in dissolution of share ownership, reduces earnings and