10060522 Sources of Finance
Transcript of 10060522 Sources of Finance
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SOURCES OF FINANCE
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SOURCES OF FINANCE
ACCORDING
TO
PERIOD
ACCORDING TO
OWNERSHIP
ACCORDING TO
SOURCE OF
FINANCE
SHORT TERM
MEDIUM TERM
LONG TERM
OWNED
CAPITAL
BORROWED
CAPITAL
INTERNAL SOURCESEXTERNAL SOURCES
ACCORDING
TO
MODE OF
FINANCING
EXTERNAL FINANCING
INTERNAL FINANCING
LOAN FINANCING
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CLASSIFICATION OF CORPORATE SECURITIES
OWNERSHIP
SECURITIESCREDITORSHIP
SECURITIES
ORDINARY OREQUITY SHARES
DEBENTURES
PREFERENCE SHARES NO PAR STOCK
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FEATURES OF EQUITY SHARES
Maturity
Right to income
Claim on assets
Right to control Pre-emptive Rights
Limited Liability
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Preference over the payment of dividend
Preference in the payment of capital at the time of liquidity
PREFERENCE SHARES
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TYPES OF PREFERENCE SHARES
Cumulative preference shares
Non-cumulative preference shares
Redeemable preference shares
Irredeemable preference shares.
Participating preference shares Non-Participating preference shares
Convertible preference shares
Non-Convertible preference shares
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FEATURES OF PREFERENCE SHARES
Maturity: To Redeem preference shares : the following
conditions are to be fulfilled: 1) must be fully paid
2) either from accumulated profits or fresh issue of
shares.
3) if from accumulated profits capital redemption
reserve is created.
4) if at premium then either out of accumulated profits
or share premium account
Claim on income. Claim on assets
Control
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DEBENTURES An acknowledgement of Debt.
A long term promissory note for raising loan capital
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TYPES OF DEBENTURES
simpleFirst and
Second Deb.
Zero Coupon
BondsZero InterestBonds
Convertible
IrredeemableRedeemable
registeredBearerSecured or
Mortgaged
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Sweat equity
It must be of class of shares already issued.
It must be authorized by a special resolution in general meeting.
The sweat shares can be issued only one year after the company is entitled to
start its business.
Equity shares must be listed on a stock exchange.
A subsidiary of an Indian company can issue sweat equity to Indian
employees even if the sub. Is incorporated out of India.
All the limitations, restrictions and provisions relating to equity shares shall
be applicable to the sweat equity.
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LISTING OF SECURITIES
Listing means admission of the securities to dealings on a recognized stockexchange. The securities may be of any public limited company, Central orState Government, quasi governmental and other financialinstitutions/corporations, municipalities, etc.
The objectives of listing are mainly to :
provide liquidity to securities;
mobilize savings for economic development;
protect interest of investors by ensuring full disclosures.
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SHORT TERM LOANS AND CREDITS
Indigenousbankers AccruedExpenses.
Public
DepositsDeffered
Expenses
Advances
Commercial
banksCommercialPaper
FactoringInstallment
CreditTrade
Credit
LOAN FINANCING
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PUBLIC DEPOSITSGovt. Regulation on Public Deposits1. Ceiling on Deposits
2. Maturity of Deposits
3. Form and Particulars of Advertisement.
4. Form of Application for Deposits.
5. Furnishing of Receipts to Depositors.
6. Register of Deposits.
7. Interest on Deposits.
8. Ceiling on Brokerage
9. Repayment of Deposits
10. Maintenance of Liquid Assets.
11. Return of Deposits.
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Evaluation of Public Deposits
As a Source of Corporate Finance
Cost of Funds
Availability of Alternative Sources of Finance
Convenience in Raising Funds
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Advantages of Public Deposits
It is a less costly method for raising short and medium term funds for meeting workingcapital requirements.
More simple, more convenient and less bothersome
As there is no need of creation of any charge on the assets of the company for raising
funds through it.
A company can take advantage of trading on equity as the maturity period of depositsand the rates of interests are fixed.
A company can avail this source when other sources are not available
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INVESTORS POINT OF VIEW:
High Rate of Interest paid by the companies Maturity period