Sources of finance of GM Breweries Limited

 

    Sources of finance of GM Breweries Limited

A sources of finance is refer to where an industry gets cash from to fund their business activities. An industry can gain funding from either internal or external sources. Similarly, GM Breweries Limited gain the finance from two modes i.e., for Long Term Source of finance and Short Term Source of finance. Analysis is done with an objective to study the GM Breweries Limited Long Term Source and Short Term Source.

    Short Term Sources of finance taken by GM Breweries Limited- Short term sources of finance are those which are used for raising capitals for short period of time that is less than one year. Money raised through short term basis is required to be paid back within one year.

Following are the type of sources used by GM Breweries Limited in order to gain funds in the organization for the purposes to meet short term expenditure.

1.     Commercial paper- Commercial paper is an unsecured promissory note issued by high creditworthy firms for raising short term funds in the organization. The maturity period of this note is ranges from 91 to 180 days. GM Breweries Limited used commercial papers which are issued by companies to banks, insurance companies or business funds at discount rate on face value and are redeemed at their face value on maturity.

2.     Trade Credit- GM Breweries Ltd. used credit services provided by the supplier of raw materials or goods for the short term. Trade credit helps GM Breweries Ltd. in continuing their operations without disruption as it helps them in getting supplies without any instant payment. Businesses are not mandatory to pay any interest amount on trade credit.

3.     Bank overdraft- It is a credit facility extended by the bank to their account holders for a shorter period. Under this facility, GM Breweries Ltd. can overdraw the total from their account up to a certain limit set by the bank. GM Breweries Ltd. need to pay interest over the overspent amount to the bank.

4.     Bill of exchange- It is a financial instrument which is drawn by the creditor upon his debtor. It is a written negotiable instrument which contains an unconditional order for paying the stated amount to the holder of the instrument. GM Breweries Ltd. is either payable on demand or on the maturity of a specific time period.

5.     Bank Loan- It means borrowing from the bank at a specific rate of interest for a spiritual period of time. Bank grants loan to GM Breweries Ltd. against some sort of security which they need to deposit at the time of taking the loan. GM Breweries Ltd. need to pay interest regularly to bank on the authorized amount. A loan is repaid to the bank either in lump sum amount or in instalment as may be decided at the time of entering the contract with bank and GM Breweries Ltd.

6.     Certificate of deposit- It is an unsecured negotiable instrument issued by commercial banks or financial institutions to depositors i.e., GM Breweries Ltd. Certificate of deposit is issued to investors i.e., GM Breweries Ltd. against the sum of total deposited by them for a fixed maturity period. The maturity period of these instruments is decided in accordance with the needs of depositors (GM Breweries Ltd.) and ranges from 90 to 365 days.

 

    GM Breweries Ltd. has used sources of finance to finance its assets and working capital for Long term Purpose.

1. Equity capital: GM Breweries Ltd. is authorized to issue a paid up capital of 638.07crores. The equity share capital of the GM Breweries Ltd. in the year 2013-14 was 353 crores. The company issued further equity shares in the year 2014-15, by which it raised to 361.79 crores and in the year 2016-2017 it increasedto382.87. During 2017-2018 and 2018-2019 there was no change in the equity capital. After that, the company has increased its equity every year till the end of the period. The net worth of the GM Breweries Ltd. is also increasing over the years. This shows the company is getting benefitted through the increase in equity share capital. The net worth of the GM Breweries Ltd. is calculated and represented by the following table.
NET WORTH= Equity share Capital+ Reserves & Surpluses- (Debit balance of P/L Account + Miscellaneous expenditure)

 

Year	NET WORTH
2013-14	3593.60
2014-15	4111.39
2015-16	5537.07
2016-17	6869.75
2018-19	7839.50

 

2.     Debt capital- The debt capital of the GM Breweries Ltd. comprises of both secured as well as unsecured loans. The loans taken from secured sources are more than unsecured ones. This is because the GM Breweries Ltd. made a huge investment for developments in the year 2019-2020. Availing unsecured loans for the GM Breweries Ltd. was not possible. These secured loans are old loans and carry a higher rate of interest as compared to unsecured loans. The rate of interest on unsecured loans is 9.5% and for secured loans is 9.75-10.25% till 2019. But the company resorted to debt swapping from the year 2020-21 and has the rate of interest on secured loans 15% and which is between 10-11% on unsecured loans. Most of the secured loans are taken from banks and the bank had charged higher rate of interest than the market rate.
The sources of debt for the GM Breweries Ltd. are mentioned below:
· Working capital borrowings from banks.
· Term loan from banks/Financial Institutions
· Foreign Loans
· Public deposits

Debt Capital of GM Breweries Ltd.

YEAR	DEBT CAPITAL (In Crores)
2015-16	2936.84
2016-17	4009.14
2017-18	6280.52
2018-19	13165.56
2019-20	15898.75