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

Instruction To Students

• The students should fill in the blanks using the terms given.
  Terms- Ownership, debt ratio, equity, bonds and debentures, loan agreement, debt-to-equity ratio

• After completing the activity, each group should present and share its main discussion points with the rest of the class.

Work Sheet

1. If you raise money by selling shares, you are giving up _________.

2. Holders of ___________ receive dividends and annual corporate reports.

3. If you borrow money from a bank, you will have to sign a ___________ .

4. The ratio of debt to assets is called a ____________.

5. When a company issues __________________it is raising money through debt.

6. The financial strategy of a company is expressed by its ________________ .

Activity 2 - CASH BANK BOOK (RECORD OF RECEIPTS PAYMENT DAY WISE).

Instruction To Students

• Students should fill the worksheet with entries from the information about ‘Lata’s Snacks Business for January’. First four entries are done in students Activity worksheet. Some cells are filled, some are blanks.

• After completing the activity, each group should present and share its main discussion points with the rest of the class.

Lata’s snacks business for January.

January 1st Own Capital Rs. 1000. January 5th Obtained loan of Rs.4000 from bank January 7th Purchased cooking vessels worth Rs.2000 January 8th Purchased Furniture worth Rs. 1000 January 10th Purchased raw materials worth Rs.1500 January 15th Sales Rs.850. January 16th Sales Rs. 1050 January 17th Sales Rs. 1000 January 18th Party order Rs. 1500 January 20th Purchased gas worth Rs.350 January 21st Credit Sales Rs.500 January 22nd Sales Rs.900 January 23rd Credit Purchases Rs.1000. January 24th Sales Rs.500 January 26th Holiday for Republic Day January 27th Sales Rs.750 January 28th Sales Rs.500 January 29th Paid electric bill Rs.750 January 30th Paid wages Rs.2000. January 31st Repaid to bank Rs.1000

Method 1:
Cash & Bank Book (Record of Receipts and Payments Day wise)

Date	Details	Payments (Rs.) Cash & Bank	Receipts (Rs.) Cash & Bank	Balance (Rs.) Cash & Bank
Jan 1st	Own Funds		1000	1000
Jan 5th	Loan from bank		4000	5000
Jan 7th	Cooking Equipments	2000		3000
Jan 8th	Furniture Purchase
Jan 10th	Raw materials
Jan 15th	Sales
Jan 16th	Sales
Jan 17th	Sales
Jan 18th	Party order Sales
Jan 20th	Purchased gas
Jan 22th	Sales
Jan 24th	Sales
Jan 26th	Holiday for Republic Day
Jan 27th	Sales
Jan 28th	Sales
Jan 29th	Electric bill
Jan 30th	Wages
Jan 31st	Repaid to bank

Summary of Reciepts & Payments for the period 1Jan to 31 Jan

Reciept		Payments
To Opening Balance To Own Capital To Sales To Recived Loan from Bank	0 1000 7050 4000	By Cooking Equipment By Furniture Purchase By Raw Material By Purchased Gas By Electric Bill By Wages By Repaid to Bank Loan By Closing Balance as on 31 Jan	2000 1000 1500 350 750 2000 1000 3450
Total	12050	Total	12050

Instruction To Students

• Often professional accountants maintain Receipts on left side of Accounts books and Payments on right side in the same account books. The accounts are then periodically balanced off. 

• Students should complete the Worksheet below using this Method 2

• After completing the activity, each group should present and share its main discussion points with the rest of the class.

Activity 3 - LATA'S INCOME EXPENDITURE ACCOUNTS (P & L ACCOUNTS).

Instruction To Students

• Once more refer to the Record of RECEIPTS & PAYMENTS of Lata’s Snacks Business. 
  From the R & P Account , ask the students to identify the:
  - SALES entries
  - COST of Production entries.
  Outgoes on ASSETS that have appeared in the ‘Balance sheet’ are not to be taken in the P & L Account.
  

  Prepare a Income & Expenditure i.e. Profit and Loss Account using the Worksheet.

• After completing the activity, each group should present and share its main discussion points with the rest of the class.