FINANCE FOR ENGINEERS Unit 2 & 3

4M:

Trend Analysis:

Set oldest year as the base year with 100%
Calculate trend percentages for the subsequent years (relative to base year)
Trend percentages state several years financial data in terms of a base year, which equals 100 percent
Trend percentage = (current year amount / base year amount) * 100 %
By examining trends, we can identify whether a company’s performance is improving, declining or remaining stable

Common Size Statements:

Vertical analysis focuses on the relationships among financial statements at a given point in time
A common size statement is a vertical analysis in which each financial item is expressed as a percentage
In this, figures reported are converted into percentages of some common base
These statements are called common size statements because all the figures are converted into a common size
Common size financial statements are particularly useful when comparing data from different companies

Comparative Statements:

Horizontal analysis is a side by side comparison of two or more years financial statements
Comparative statement is a horizontal analysis in which the figures can be absolute values or percentages
Dollar change = current year figure - base year figure [ last year becomes base year]
Percentage change = (dollar change / base year figure) * 100 %

Angel investors:

Individuals looking for investment opportunities
An experienced industry person who provides needed funds for small startups or entrepreneurs
Apart from funds angels invest their time, experience, network and energy in the business they invest in
Generally small sums up to 100,000
Example: Sanjay Mehta - invest in OYOrooms, OrangeScape

Angel Investors (Advantages & Disadvantages):

Advantages:

Disadvantages:

Venture Capital:

Venture capital is money provided to seed early stage, emerging growth companies
Venture capitalists invest in companies in exchange for equity in the companies they invest in, which usually have a novel technology or business model
looking for investment opportunities in fast growing businesses or businesses with highly rated prospects
Venture capital firms is a limited partnership that specializes in raising money to invest in private equity of young firms
Example: Foodpanda funded by Rocket Internet

Venture Capital (Advantages & Disadvantages):

Advantages:

Disadvantages:

12M:

For UNIT 2, Ratio analysis problems will be there.

So plz go through the formulas in the ppt.

Sources of Finance:

Finance is the lifeblood of business
No business can be carried out without finance
There are several types of finance which can be categorized as internal or external, long term or short term and fixed and working capital finance

Long Term sources of finance:

-long term financing is a form of financing that is provided for a period of more than one year

-It is also known as fixed capital finance

Equity Shares: Such a shareholder has to share the profits and also bear the losses incurred by the company. Equity shareholders are regarded as the real owners of the company.
Preference shares: A share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends.
Debentures: A debenture is a type of debt instrument issued by a company that is not secured by physical assets or collateral.
Public deposits: It implies any money received by a company through the deposits or loans collected from the public.
Retained earnings: The company may not distribute the whole of its profits among its shareholders. It may retain a part of the profits and utilize it as capital for further long term activities.
Depreciation fund: A fund set up by a company to provide money to buy new fixed assets. Every year, the fund invests an amount of money equal to an existing asset's depreciation allowance, giving the company money that can be used to buy new assets.
Loans from financial institutions: There are many specialized financial institutions established by the Central and State governments which give long term loans at reasonable rates of interest for the long term capital investments by the company.

Short term sources of finance:

-Short term finance is required to meet day to day expenses

-It is also known as working capital finance

Cash credit: an arrangement whereby banks allow borrower to withdraw money up to a specified limit
Bank overdraft: When a bank allows its depositors or account holders to withdraw money in excess of the balance in his account up to a specified limit, it is known as overdraft facility.
Bills discounting: Banks also advance money by discounting bills of exchange, promissory notes and hundies. When these documents are presented before the bank for discounting, banks credit the amount to the customer's account after deducting the discount.
short term bank loan: When a certain amount is advanced by a bank repayable after a specified period, it is known as bank loan. The period is usually short, like 1 - 3 years.
Trade credit: Trade credit refers to credit granted to manufacturers and traders by the suppliers of raw material, finished goods, components, etc
Customer advances: Customers’ advance represents a part of the payment towards price on the product (s) which will be delivered at a later date. Customers generally agree to make advances when such goods are not easily available in the market or there is an urgent need for goods.
Installment credit: Only a small amount of money is paid at the time of delivery of such articles. The balance is paid in a number of installments. Interest is charged by the supplier for extending credit.

Angel Investors and Venture Capital can be asked for 12M.

Plz combine the 4M and write

loveandhate