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    sources of finance sources of finance Presentation Transcript

    • SOURCES OF FINANCE
    • ACCORDING TO PERIOD Short Term Medium Term Long Term
      • Trade Credit
      • Bank financing
      • Customer Advances
      • Factoring
      • Accruals
      • Deferred Incomes
      • CPs
      • Installment Credit
      • Credit cards
      • Bill financing
      • Inter corporate deposits
      • Issue of Debentures
      • Issue of Preference Shares
      • Bank Loans
      • Public Deposits/Fixed Deposits
      • Hire purchase
      • Lease financing
      • Equity financing
      • Preference shares
      • Debt financing
      • Venture capital financing
      • Internal financing
      • International financing
      • According to Ownership
      • Owned Capital- Share Capital, Retained Earnings, Profit Surplus etc
      • Borrowed Capital- Debentures, Bonds, Public Deposit, loans
      • According to source of Finance
      • External- Shares, Debentures, Public Deposit, loans etc.
      • Internal- Retained Earnings, Profit Surplus ploughing back of profits, depreciation fund etc
    • LONG TERM FINANCING
      • 1 . Equity Financing or shares
      • Characteristics
      • Maturity
      • Claims/ Right to Income
      • Claim on Asset
      • Right to control or Voting Right
      • Pre-Emptive Right
      • Limited Liability
    • Advantages & Disadvantages
      • Disadvantages
      • To Company
      • Not to be paid fixed dividend
      • No charge over asset at the time of issue
      • Permanent source of income
      • To share Holder
      • Voting right
      • Benefited at the time of high profits
      • To Company
      • If only equity shares issued co. cannot take the advantage of trading on equity
      • Can put obstacles in management
      • To share Holder
      • Not suitable for one who want fixed income and secured investment
      • Advantages
      • 2 . Preference Shares:
      • Characteristics
      • Maturity
      • Claim on Income
      • Claim on Asset
      • Control
      • Hybrid form of Investment
      • Cumulative dividends
      • Fixed income security
      • Participation feature
      • Convertibility
      • Voting rights
      • Call and put provision
      • Controlling power
      • TYPES:
      • Cumulative Preference Shares
      • Non Cumulative
      • Redeemable
      • Irredeemable
      • Participating
      • Non Participating
      • Convertible
      • Non Convertible
      • Cumulative convertible preference shares (CCP)
    • Advantages (to company)
      • No obligation to pay dividend
      • Provide long term capital
      • No liability to redeem pref. share
      • Fixed rate of dividend is to be paid so co. can go for trading on equity
      • No voting rights
      • No specific asset is pledged for the issue
      Advantages (to share holder)
      • Fixed dividend
      • Superior security over equity
      • Preference in payment of dividend, capital
    • Disadvantages (to company)
      • Expensive source as expected dividend is high
      • Permanent burden in case of cumulative preference shares
      • Although no legal obligation to pay dividend but continuous delay affect creditworthiness
      • Dividend do not save tax
      • Some preference sh. Carry voting rights also
      Disadvantages (to Share holders)
      • More fluctuations in market price as compared to the debentures
      • No voting rights
      • No charge over assets
      • 3. Deferred shares
      • 4. No par stock shares
      • 5. Shares with differential Rights
      • 6. Sweat Shares
    • 7. Debt financing
      • (a) Debentures:
      • Characteristics
      • Maturity
      • Claim on Income
      • Claim on Asset
      • Trust deed
      • Interest rate
      • Redemption
      • Debenture redemption reserve (DDR)
      • Call & put provision
      • Security
      • Convertibility
      • Credit rating
      • Simple, Naked, Unsecured
      • Secured or Mortgaged
      • Bearer
      • Registered
      • Redeemable
      • Irredeemable
      • Convertible:
      • FCD
      • PCD
      • NCD
      • Zero interest bonds or debentures
      • First debenture and second debenture
      • Guaranteed debentures
      • Collateral debentures
      • Deep discount bonds (DDB)
      Types:
    • Advantages
      • To Company
      • Long term funds
      • Low rate of interest as compared to dividend
      • No dilution of control
      • Addition of debenture in capital structure increases the EPS
      • Can be redeemed any time with the availability of surplus funds
      • To share holder
      • Fixed , regular source of income
      • Security of investment
      • Definite maturity period
    • Disadvantages
      • To company
      • Fixed interest
      • Charge on assets
      • It generally increases the risk on investor thereby increasing the cost of equity capital
      • High stamp duty increases the cost of issue
      • Cannot be used by the company having highly elastic demand, instable earnings, insufficient fixed assets
      • To Shareholders
      • No voting rights
      • Merely creditors not the owners
      • Uncertainty in redemption
    • (b) Term loans (from FI) 8. Venture capital financing
    • 9. Internal financing
      • Need
      • Replacement of fixed assets
      • Expansion plans
      • Contributing towards fixed or working capital requirements
      • Improve efficiency of plant and equipments
      • Redemption of loans etc
      (a) Retained earning:
    • Factors Influencing:
      • Earning Capacity
      • Desire and type of shareholders
      • Future financial requirements
      • Dividend policy
      • Taxation policy
    • Advantages
      • To Company
      • Absorption of economic shocks
      • Economical method of financing
      • Aid in smooth and undisturbed running of business
      • Helps to follow stable dividend policy
      • Flexible financial structure
      • Makes co. self dependent
      • Enables to redeem long term liabilities
    • Advantages
      • To shareholders
      • Increase in value of share
      • Safety of investment
      • Enhanced earning capacity
      • No dilution of control
      • Evasion of super tax
      • To society
      • Increased rate of capital formation
      • Stimulates industrialization
      • Increased productivity
      • Decrease the rate of industrial failure
      • Higher standard of living
    • Disadvantages
      • Over capitalization
      • Creation of monopoly
      • Deprive the freedom of investors
      • Misuse of retained earnings
      • Dissatisfaction among share holders
    • (b) Depreciation (c) Working Capital (d) Sale of assets
    • MEDIUM TERM FINANCING
      • Public deposit
      • 2. Term loan ( from commercial banks
      • 3. Hire purchase
      • 4. Lease financing
    • SHORT TERM FINANCING
      • Trade Credit
      • Customer Advances
      • Accruals
      • Deferred Incomes
      • Installment Credit
      • Credit cards
      • Bill financing
      • Inter corporate deposits
      • COMMERCIAL PAPERs
      • 10. BANK FINANCING
      • Overdraft
      • Clean overdraft
      • Loans
      • Cash credit
      • Advance against goods
      • 11. BRIDGE FINANCING
      • SHORT NOTE:
      • SEED CAPITAL
    •