How To Effectively Finance The Company?

Capital is the key to the survival of enterprises. It is a good weapon to defeat opponents in fierce competition.

A healthy development enterprise can not only make full use of the source of internal capital, but also effectively integrate funds from outside.

From the perspective of development, funds are scarce resources for every enterprise, and production, capital management and long-term development of enterprises are inseparable from capital at all times.

Therefore, how to effectively carry out enterprise financing has become an extremely important basic activity of the financial management department of enterprises.

Although the basic purpose of enterprise financing is to maintain and develop its own production and capital operation, it is usually driven by specific motives for each specific corporate financing activity.

For example, enterprises finance for normal capital operation and temporary needs; enterprises finance for acquiring equipment, expanding scale, importing new technologies and developing new products; enterprises are investing in foreign enterprises and merging other enterprises; and enterprises are financing enterprises in order to repay debts and adjust capital structure.

No matter what motives the enterprise financing activities are motivated, the financial personnel of the enterprise must seriously analyze and evaluate various factors that affect the financing of enterprises, and strive to achieve the highest efficiency and the best comprehensive economic benefits within the scope of their own business financing activities.

We know that corporate financing activities come from investment demand.

Of course, the investments mentioned here include liquid assets investment, fixed assets investment and indirect investment in capital market.

Whether to carry out enterprise financing activities is mainly decided by comparing investment income and capital cost.

For example, what is the average annual rate of return (or annual average profit rate) of investment projects in the future?

How much is the cost (or the cost of capital) paid for by the financing of enterprises?

This is the most concern of decision makers in business management.

Therefore, the financial personnel of the enterprise must make a more reliable prediction of the future investment earnings before carrying out the enterprise financing activities. Only when the investment income is far greater than the cost of capital, it can be determined that the enterprise financing activities are reasonable and meaningful.

When the direction of investment is determined, the next thing to do is to estimate the amount of investment, because the amount of investment determines the amount of financing.

How to estimate the amount of investment, though there are various methods of calculation, is not what this article will explain.

As an enterprise financial personnel, we must carefully estimate the amount of capital needed in any way and adopt any way to carry out enterprise financing.

Only in this way can we balance the amount of financing and quantity of investment and avoid the insufficient financing of enterprises, which will affect the investment effect of enterprises or the excess of corporate financing and reduce the efficiency of funds.

Once the capital requirements are determined, enterprises should consider the financing of external enterprises after making full use of the sources of internal capital.

The source of internal capital is nothing more than the source of cash generated through depreciation and the increase of retained earnings.

This part of the capital is formed inside the enterprise, and it will take the cost of using the funds (actually non cash payment), but it will not pay for the financing of the enterprises.

The external enterprise financing refers to the sources of funds formed from the external integration when the enterprise's internal financing fails to meet the needs, including the form of debt financing, such as bank loans, issuing bonds, corporate finance leases and business credit, etc.

The cost of external integration will not only cost but also finance.

Therefore, the cost of external financing is relatively high.

The real financing of enterprises is to integrate funds from outside, and the real amount of corporate financing is the total amount of funds to be integrated into the outside.

There are many ways and means to finance corporate finance. Different enterprises have different financing channels and ways. Their financing difficulty, capital cost and financial risk are different.

Now that we need to integrate funds from outside, enterprises must consider that after financing, we should maintain a sound and reasonable financial structure and capital structure, so that financial risks are at a safe level, and the cost of comprehensive funds is also reduced.

Under such an overall corporate financing strategy, several enterprise financing schemes are designed to sort out the advantages and disadvantages of these schemes in order to implement dynamic optimization in specific enterprise financing practices.

Of course, the overall corporate financing strategy must be combined with specific corporate financing practices.

For example, according to the general financial theory, the financing cost of equity enterprises is higher than that of debt enterprises.

Therefore, in the fluctuation range of financial risk, the enterprises in developed countries always focus on financing ways of debt enterprises considering reducing the cost of comprehensive capital.

In China's capital market, the situation is different now and for some time to come.

Because most enterprises in China are generally not very efficient, investors generally expect lower returns.

Moreover, the empirical research in financial circles at home and abroad has not yet proved that the financing cost of Chinese enterprises' equity capital is higher than that of debt funds.

In fact, as long as we notice that most enterprises in China are generally not efficient, with high asset liability ratio, financial risks and pressures, enterprises should know how to do so when financing foreign enterprises.