2. (Equity) Ordinary Shares–Features
• Claim on Income
• Claim on Assets
• Right to Control
• Voting Rights
• Pre-Emptive Rights
• Limited Liability
3. Reporting of Ordinary Shares
Liabilities
Tata Steel Ltd. Mar 2007 Mar 2008 Mar 2009 Mar 2010
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths
-
Net worth 13949.09 27300.73 30176.26 37168.75
Authorised capital 1750 1750 1750 1750
Issued equity capital 581.07 731.37 731.37 888.13
Paid up equity capital 580.47 730.58 730.59 887.21
Forfeited equity capital 0.2 0.2 0.2 0.2
Paid up preference capital 0 5472.52 5472.66 0
Reserves & surplus 13368.42 21097.43 23972.81 36281.34
Free Reserves 12580.26 20264.34 23165.43 34865.94
Security premium reserves 2201.46 6391.92 6112.92 14032.8
Other free reserves 10378.8 13872.42 17052.51 20833.14
Specific Reserves 788.16 833.09 807.38 1415.4
4. Equity Shares–Pros and Cons
• Advantages
– Permanent Capital
– Borrowing Base
– Dividend Payment Discretion
• Disadvantages
– Cost
– Risk
– Earnings Dilution
– Ownership Dilution
5. Public Issue of Equity
• Public issue of equity means raising of share
capital directly from the public.
• As per the existing norms, a company with a
track record is free to determine the issue
price for its shares.
6. Underwriting of Issues
• It is legally obligatory to underwrite a public and
a rights issue.
• In an underwriting, the underwriters—generally
banks, financial institution, brokers, etc.—
guarantee to buy the shares if the issue is not
fully subscribed by the public.
• The agreement may provide for a firm buying by
the underwriters.
• The company has to pay an underwriting
commission to the underwriter for their services.
7. Private Placement
• Private placement involves sale of shares(or
other securities) by the company to few
selected investors, particularly the
institutional investors.
• Private placement has the following
advantages:
• Size
• Cost
• Speed
8. Preference Shares
• Similarity to Ordinary Shares:
– Non payment of dividends does not force company to
insolvency.
– Dividends are not deductible for tax purposes.
– In some cases, it has no fixed maturity dates.
• Similarity to Debentures:
– Dividend rate is fixed.
– Do not share in residual earnings.
– Preference shareholders have claims on income and
assets prior to ordinary shareholders.
– Usually do not have voting rights.
9. Preference Shares–Features
• Claims on Income and Assets
• Fixed Dividend
• Cumulative Dividend
• Redemption
• Sinking Fund
• Call Feature
• Participation Feature
• Voting Rights
• Convertibility
10. Preference Shares–Pros and Cons
• Advantages:
– Risk less leverage advantage
– Dividend postponability
– Fixed dividend
– Limited Voting Rights
• Disadvantages:
– Commitment to pay dividends
11. DEBENTURES
• A debenture is a long-term promissory note for
raising loan capital.
• The firm promises to pay interest and principal as
stipulated.
• The purchasers of debentures are called
debenture holders.
• An alternative form of debenture in India is a
bond.
• Mostly public sector companies in India issue
bonds.
12. Debentures–Features
• Interest Rate
• Maturity
• Redemption
• Sinking Fund
• Buy-back (call) provisions
• Indenture
• Security
• Yield
• Claims on Assets and Income
13. Types of Debentures
• Non –Convertible Debentures
• Fully –Convertible Debentures
• Partly –Convertible Debentures
14. Debentures–Pros and Cons
• Advantages:
– Less Costly
– No ownership Dilution
– Fixed payment of interest
– Reduced real obligation
• Disadvantages:
– Obligatory Payment
– Financial Risk
– Cash outflows
– Restricted Covenants
15. Term Loans–Features
• Maturity
• Direct Negotiations
• Security
• Restrictive Covenants
– Asset related covenants
– Liability related covenants
– Cash flow related covenants
– Control related covenants
• Convertibility
• Repayment Schedule
16. VENTURE CAPITAL
• Venture capital(VC) is a significant financial
innovation of the twentieth century.
• Venture capital is the investment of long-term
equity finance where the venture capitalist earns
his return primarily in the form of capital gains.
• The underlying assumption is that the
entrepreneur and the venture capitalist would act
together in the interest of the enterprise as
‘partners’.
17. Features of Venture Capital
• Equity Participation
• Long-term Investments
• Participation in Management
19. THE BUSINESS PLAN
• The first step for a company (or an entrepreneur) proposing
a new venture in obtaining venture capital is to prepare a
business plan for the consideration of a venture capitalist.
• Essential Elements of a Business plan
– Executive summary
– Background on the venture
– The product or service
– Market analysis
– Marketing
– Business operations
– The management team
– Financial projections
– Amount and use of finance required and exit opportunities
