6.2 Financing decisions
Raising an appropriate amount of finance at the required time is essential to enable businesses to support their investment programmes. Like other business resources, finance takes different forms, each with particular characteristics, and it is important that this is taken into account. The finance required to support long – term strategic investments should be obtained from long – term sources. The most important of these are the funds provided by the owner(s) (referred to as ‘equity’ in the world of corporate finance) and long – term loans secured from other parties willing to invest in the future prospects of the business. This debt may be provided by banks and other financial institutions, or by other investors buying financial instruments trades in capital markets such as the international stock exchanges.
When determining the sources of long – term finance to be employed to support a business’s investment projects, it is important to consider an appropriate balance between funds provided by the owners of the business and debt. When determining the capital structure of a company, using the appropriate amount of borrowing reduces a company’s cost of capital, enhances returns and increases the value of the business.
Businesses in the travel and tourism industry are often regarded as operating in particularly risky and uncertain environments because demand for their services