Ways to Raise Capitals for Companies.doc

ways to raise capitals for companiesabstract: the establishment, survival and development of the company are inseparable from the capitals. however, raising capitals involves many issues, in which the choice of the ways to raise capitals is one of the most important parts. this essay aims at discussing the ways to raise capitals for companies by comparing different capital structure, analyzing different capital cost and contrasting different financing risk.key words: ways to raise capitals; capitals; cost1. introduction to the ways to raise capitalsthe ways to raise capitals is the concrete form of getting fund for the companies. in the market economy, there are two ways to raise capitals for companies. one way is endogenous financing, which means the process that the company will change their retained earnings and depreciation into investment. another way is foreign aid financing, which means the process that the company absorbs the capitals of other economic main body, so as to be transformed into the investment by themselves. with the development of technology and the expansion of production scale, only depending on endogenous financing is difficult to meet the companys fund demand, foreign aid financing has gradually become an important way to gain capitals for the companies. recently, the ways of foreign aid financing for companies are the followings: issuing stocks, issuing bonds, bank loan, trade credit, finance lease, absorbing direct investment, and so forth. 2. the factors that influence the choice of the ways to raise capitals for companiesit is a very complex issue for companies to choose the ways to raise capitals. there will be different evaluations according to different standards of comparison. owing to various characteristics of the ways to raise capitals, while in choosing financing ways, the companies should choose the proper one rationally according to the needs of the production and management. there are the following factors in the process of choice.2.1 the amount of raising capitalsthe amount of raising capitals refers to the numbers of the companies to raise fund, which is proportional to the demand for the capitals of the companies. the companies must determine the amount of raising capitals rationally according to the demand for the capitals.2.2 the cost of raising capitalsin a certain condition of the amount of raising capitals, the companies should consider further the cost of raising capitals. the cost of raising capitals is composed of different expenses that has been gained and used by the companies. in the circumstances that there are a variety of ways to choose, the companies should analyze the different cost of raising capitals and compare them, then find out the differences, at last choose the best ways to raise capitals which are suitable for the development of the companies. 2.3 the risk of raising capitalsthere are mainly two aspects of raising capitals for companies. one is the risk of operating the company itself; another is the inherent financial risk in the capital market.optional risk is uncertain that the companies have themselves inherently in the income from operation and a pre-tax profits and interest. there are many factors that can influence the company operation, such as product requirement, price variation, operating leverage effect, and so on. however, these factors can be controlled to a certain degree. on the contrary, the other risk can not be controlled and avoided in the process of raising capitals for companies, which is the financial risk.financial risk is caused by financial leverage, which is the extraneous risk that is undertaken by the companies and goes beyond the stock risk. financial leverage can make the companies after-tax profits change greatly, and increase the probability of the company to go bankrupt. but the companies can get the rising more quickly which is brought by the domino effect of financial level. if the company income is more than financing cost itself, this financing action is successful. 2.4 the profit of raising capitalsthe companies should consider the amount of the profit invested in the project when they evaluate and compare the different kinds of ways to raise capitals. this project would be feasible only when the anticipated income of the companies raising capitals project is more than the total cost of the raising capitals. in addition to the above factors, raising capitals for the companies is also restricted by the other objective conditions, such as the size of the company, the credit rating of the company, social relations, and other factors.3. the choice of the ways to raise capitals3.1 the choice of different capital structurethe capital structure will have an influence on the ways to raise capitals for companies in different forms. some companies, whose conserve equipment assets have a large proportion and whose equipments leave unused, can lease their idle equipment. then the companies rent into equipments needed by themselves by means of finance lease for production and operation. in doing so, they can not only use their idle resources, but also make production profit by the ways of finance lease to use other companies capitals.3.2 the choice of different cost of capitalsbecause the amount of the financing cost is different, when choosing the ways of raising capitals, the companies should consider the financing cost. for example, a company may meet the problems of long-term loan and finance lease. when using the long-term loan, the company may add the ratio between liabilities and assets, the capital structure would be deteriorated, and thus the operating pressure would be brought to the company. on the contrary, the finance lease will be different. the cost is only the expense that should be paid for the quota at regular intervals. the rent paid by the lessee can be deducted from the sales income before tax. the real financing cost paid by the lessee will be reduced greatly. so finance lease is the worth choosing ways to raise capitals.3.3 the choice of different risks of raising capitalsin general, raising capitals by stock finance has little financial risk, as there is not fixed due date and there is no need to pay for fixed interests. absorption direct investment is the relationship of joint venture, joint adventure and sharing profit, so the financial risk is also little. if only considering the risk of raising capitals, these two ways can be regarded as a kind of good choice. bond financing is just on the contrary. issuing bonds needs to pay back principal and interest because there is the fixed due date. when the companies become depression, this way may add the pressure for them and even may lead to bankruptcy.3.4 the choice of different scale of companiesgenerally speaking, the capital requirement of large company is big. their capitals are used in the aspects of enlarging the productivity, developing new product and technology transformation. when choosing the ways to raise capitals, they should take into consideration the ways which can provide a large amount of capitals and the long due time. issuing bonds should be better that issuing stocks, even though bonds need to pay some interests and may have a higher risk, compared with the stocks which have higher cost and are difficult to control. the capital requirement of small and medium companies is less. the companies mainly put their capitals into the products in short supply or meet the needs of short-term capital turnover. when choosing, they should consider the ways of raising capital faster and high resilience, such as short-term loan and trade credit. for the small and medium companies, the trade credit should be given priority to choose. there are two reasons. firstly, the capitals of trade credit come from the related companies. during the trade, there is understating and mutual trust, so that the risk may be relatively small. secondly, the requirement for trade credit is low than the other. there is no need for the collateral and no costs for assets assessment, notarization and registration.4. conclusionat present, with the establishment and development of the socialist market economy system, the raising capitals action for the companies has become a complex and systematic project; meanwhile, it is an important financing activity that is related to company as a whole. therefore, when raising capitals, the companies should hold the careful and scientific attitude. after very careful mark