This module and its associated activities should help the student to:

1.Compare debt and equity financing.

2.Calculate debt-to-equity ratio and debt ratio

3.Evaluate the risks of heavy debt financing .

4.Evaluate the risks of excessive equity financing

Enterprise Concepts:

Financing.Finance is the use and manipulation of money. Raising money for business is one aspect of financing

Debt.The business borrows the money and pays it back over a set period of time at a set rate of interest. Companies sell debt in the form of bonds and debenture. They may also take loans from banks as part of debt.

Equity.The business gives up a Percentage of ownership for money. The investor receives a percentage of future profits from the business based upon the percentage of ownership. Companies sell equity in the form of shares

Grants.Some charity organisation or community groups may give grants to promising youths. A grant is sort of outright donation. The entrepreneur may show this as equity.

Subsidies.Subsidies are financial help given to aspiring entrepreneurs who want to start a new business under some government schemes.

Bonds.Bonds are deposits taken by the company from the public.Company indemnifies the holder of the bond for refund of value of the bond after stipulated period along with interest due. Bonds are not tradable on the stock exchange

Debentures.: If a loan to be raised by a company is divided into uniform parts(each part being serially numbered)and the loan is raised by enabling people to buy as many parts as they wish,then each part will be known as debenture. The debenture therefore is an acknowledgment under seal of a debt or loan. It is as good as loan taken from individual on certain terms and conditions and on payment of a fixed interest rate for a fixed period. A Company assures/guarantees to the holder to refund the value of the debenture on maturity. On liquidity of the company the debenture holder gets the preferential rights to the refund of the value of the debenture. Debentures can be traded on the stock exchange.

Enterprise Skills:

The student 'Activities' in each lesson are designed to clarify the ENTERPRISE CONCEPTS of the lesson and develop some ENTERPRISE SKILLS (E.SKILLS). The E.SKILLS included in a lesson may not be exhaustive, but are indicative.

E.SKILLS stated in a lesson elsewhere may also get addressed through the activities of a particular lesson.

Some useful E.SKILLS are dealt with below:

Numeracy skill.: The skill to calculate, estimate, use calculators and measuring instruments, analyse and respond to quantitative information, recognise and use numerical pattern & relationships is broadly referred to as NUMERACY SKILL.

Data interpretation: The ability to interpret numerical data, figures, charts,graphs and tables is referred to as Data Interpretation.

Activities:

Activity 1 - Using new words in finance.

Activity 2 - Cash bank book (Record of receipts Payments day wise).

Activity 3 - Lata's income expenditure accounts (P & L Accounts).

Activity 4 - Lata's balance sheet.

Activity 5 - Start up finance plan.