As a part of our engagement plans to strengthen partnership with the entrepreneur community at “Elm”, we held our 20th webinar during the COVID-19 quarantine and hosted Mr. Sari Ahmed Al-Salem, who kindly discussed the concept of funding, financial analysis, and financial statements.
Funding
Funding is a financial system associated with managing funds within a company. The company can identify requirements related to monetary resources and its usage considering all the financial and funding risks of the project. Funding is a branch of the economy and is divided into loans, savings, budget policy, investment and fund management. Funding is one of the most important factors of project success or failure, as more than 29% of startups fail because of a lack of funding.
Types of funding and factors in funding structure
Assets can be funded equally between liabilities and equity. Liabilities mean any external loan or fund, while equity reflects current investors who own shares in the company. The most important factors of the funding structure include the expected amount of project revenue, the degree of expected risk, loan cost, asset type (fixed or long/short term) and tax liabilities.
The relationship between funding costs and risk is direct. This means that a higher risk will result in higher funding costs which will decrease its accessibility. Usually, risk reaches its highest point at the beginning of any investment, so we recommend taking a loan from family or friends. The most important source of risk is the inability to generate project revenue because this leads to an uncertain and tenuous project.
Financial statements, importance and components
A financial statement is a means of communication between a company and external entities. It is also the channel for updates from the company to beneficiaries, whether they are owners, investors, creditors or partners. The importance of financial statements lies in providing essential information to all beneficiaries, which provides an overview of the company to evaluate the ability to generate cash flow, establish a periodical measurement of income, and ways of using the available funds. The financial statement consists of financial status, a profit and loss statement, internal and external cash flows, changes in equity, and a comprehensive income statement.
Financial analysis and types
Financial analysis focuses on deriving quantitative and qualitative indicators of the business activity through financial statements and other resources. The purpose of the analysis is to make precise decisions regarding investments or the company’s structure. The importance of financial analysis lies in detecting the strengths and weaknesses of financial policies and for developing proper solutions, determining management efficiency, obtaining productivity indicators and determining ability to grow, develop financial plans and identify indicators of success or failure to achieve company objectives.
Loans, financial investment and resources
Loans represent a funding process where a company receives liquidity with-or-without interest from an external party. There are different sources of loans for investors includes loans from friends, family, agencies, governmental or local banks or funding companies. The company must be aware of the following loan particulars: