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BRILLIANT’S Long Term Financing and Valuation of Goodwill & Shares 159

(iii) According to Source of Generation (iii) gmog© Am°’$ OZaoeZ Ho$ AmYma na
(a) Internal sources, viz. retained earnings and (a) BÝQZ©b gmog©og O¡go, [aQ>oÝS> A{Zª½g Ed§ S>o{à{eEeZ
depreciation funds etc. ’$ÊS> Am{X&
(b) External sources, viz. securities such as (b) E³gQ>Z©b gmog}g O¡go, {g³¶mo[aQ>rO, eo¶g©,
shares and debentures, loans etc. {S>~oÝMg©, bmoZ Am{X&
However, for the sake of convenience, the hmbm§{H$ gw{dYm H$s ÑpîQ> go ’$ÝS> Ho$ {d{^ÝZ gmog}g
different sources of funds can be broadly H$mo Xmo Ho$Q>oJarO ‘| ³bm{g’$m¶ {H$¶m Om gH$Vm h¡:
classified into two categories:
A. Short-term sources of finance A. ’$mBZoÝg Ho$ em°Q>©-Q>‘© gmog}g
B. Long-term sources of finance B. ’$mBZoÝg Ho$ bm±J-Q>‘© gmog}g&

Purpose of Long-term Finance bm±J-Q>‘© ’$mBZoÝg Ho$ CX²Xoí¶
Long-term finance is required for the bm±J-Q>‘© ’$mBZoÝg H$s Amdí¶H$Vm {ZåZ{b{IV
following purposes: CX²Xoí¶m| Ho$ {b¶o hmoVr h¡:

1. To finance fixed assets: Business 1. {’$³ñS> AgoQ²>g H$mo ’$mBZoÝg H$aZo Ho$ {b¶o:
requires fixed assets like machines, building, {~OZog ‘| ‘erZ|, {~pëS>¨J, ’$ZuMa Am{X {’$³ñS> AgoQ²>g
furniture etc. Finance required to buy these H$s Amdí¶H$Vm hmoVr h¡& BZ AgoQ²>g H$mo nM}g H$aZo Ho$
assets is for a long period, because such assets {b¶o bm±J-Q>‘© ’$mBZoÝg H$s Amdí¶H$Vm hmoVr h¡ ³¶m|{H$
can be used for a long period and are not for Bg àH$ma H$s AgoQ²>g H$mo ar-gob Ho$ {b¶o Zht IarXm
resale. OmVm ~pëH$ bå~o g‘¶ VH$ Cn¶moJ {H$¶m OmVm h¡&
2. To finance the permanent part of 2. d{Hª$J H¡${nQ>b Ho$ na‘mZoÝQ> {hñgo H$mo ’$mBZoÝg
working capital: Business is a continuing H$aZo Ho$ {b¶o: {~OZog EH$ bJmVma MbZo dmbr Ep³Q>{dQ>r
activity. It must have a certain amount of h¡ {Og‘| d{Hª$J H¡${nQ>b H$m Hw$N> {hñgm Eogm hmoVm h¡ Omo
working capital which would be needed again
and again. This part of working capital is of a ~ma-~ma Cn¶moJ ‘| AmVm h¡& d{Hª$J H¡${nQ>b H$m ¶o {hñgm
fixed or permanent nature. This requirement {’$³ñS> ¶m na‘mZoÝQ> ZoMa H$m hmoVm h¡& BgH$s ny{V© ^r
is also met from long-term funds. bm±J-Q>‘© ’$ÝS> go H$s OmVr h¡&
3. To finance growth and expansion of 3. {~OZog H$s J«moW Ed§ E³gnm§eZ Ho$ {b¶o: {~OZog
business: Expansion of business requires Ho$ E³gnm§eZ Ho$ {b¶o ^r ~‹S>r ‘mÌm ‘| H¡${nQ>b Ho$ BÝdoñQ>‘|Q>
investment of a huge amount of capital H$s Amdí¶H$Vm hmoVr h¡ Omo bå~o g‘¶ VH$ ¶m na‘mZoÝQ>
permanently or for a long period. hmoVr h¡&

Factors Determining Long-term Fi- bm±J-Q>‘© ’$mBZopÝe¶b Amdí¶H$VmAm| H$mo
nancial Requirements {ZYm©[aV H$aZo dmbo ’¡$³Q>g©

The amount required to meet the long- bm±J-Q>‘© H¡${nQ>b Ho$ ê$n ‘| {H$gr H$ånZr H$mo {H$VZr
term capital needs of a company depends upon H¡${nQ>b H$s Amdí¶H$Vm hmoJr, ¶h ~hþV go ’¡$³Q>g© na
many factors. These are:
{S>noÝS> H$aVm h¡& ¶o ’¡$³Q>g© {ZåZ{b{IV h¢:
1. Nature of business: The nature and 1. {~OZog H$m ZoMa: {~OZog Ho$ ZoMa Ho$ AmYma na
character of a business determines the amount {’$³ñS> H¡${nQ>b H$s A‘mCÝQ> H$s ‘mÌm V¶ hmoVr h¡& EH$