Your SlideShare is downloading. ×
0
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Long Term Financing
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Long Term Financing

11,048

Published on

long term financing by jim

long term financing by jim

5 Comments
8 Likes
Statistics
Notes
No Downloads
Views
Total Views
11,048
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
474
Comments
5
Likes
8
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. LONG TERM FINANCE
    • by Group – 1
    • Anish
    • Aravind
    • Charlie
    • Jacob
    • Jovita
    • Nelson
  • 2. WHAT IS LONG TERM FINANCING ?
  • 3. NEED FOR LONG TERM FINANCE
    • Increasing the facilities
    • Expansion, diversification; huge quantities reqd., irreversible decision
    • Buying fixed assets
  • 4. SOURCES
    • Equity capital
    • Preference capital term loans
    • Internal accruals
    • Debentures
    • Term loans
  • 5. SHARES
  • 6. BUYING AND SELLING OF SHARES
  • 7. EQUITY CAPITAL
    • Some terms
    • Authorized, Issued, Subscribed and Paid up capital
    • Par/face value, Issue Price, Book value and Market Value
    • Rights of equity shareholders
    • - Right to Income :PAT less preferred dividends
    • - Right to Control : voting rights
    • - Pre-emptive Right : for additional issues, rights issue in the same proportion
    • - Right in liquidation : residual claim over assets
  • 8. EQUITY CAPITAL
    • Advantages
    • No compulsion to pay dividends
    • No fixed maturity, no obligation to redeem
    • Dividends tax exempt for investors
    • Disadvantages
    • Dilution of control of existing owners
    • High Cost: rate of return expected by equity holders higher than debt holders
    • Dividends are not tax deductible: hence cost is higher
    • Issue costs higher: underwriting, brokerage, other issue expenses
  • 9. PREFERENCE CAPITAL
  • 10.
    • Advantages
    • No obligation to pay dividend, no bankruptcy or legal action for non payment
    • Financial distress of redemption obligation not very high
    • Part of net worth, hence increases its creditworthiness/ leverage capacity
    • No dilution of control
    • No pledging of assets required
  • 11.
    • Disadvantages
    • Expensive source since dividends not tax deductible
    • Though no legal consequences, liability to pay dividends stands, can spoil company’s image
    • Can acquire voting rights if company skips dividend for certain period
    • Have claim prior to equity holders
  • 12. INTERNAL ACCRUALS
    • It consist of depreciation charges and retained earnings
    • Advantages
    • Readily available, no talking to outsiders
    • Effectively additional equity capital, however no issue costs of loss due to under-pricing
    • No dilution of control
    • The stock market generally views an equity with skepticism, but retained earnings doesn’t
  • 13. INTERNAL ACCRUALS
    • disadvantages
    • Quantum very limited
    • High Opportunity costs: dividends forgone by equity holders
    • Requires careful attention to NPV of projects
  • 14. DEBENTURES
    • Trustee: Need to appoint a trustee to ensure fulfillment of contractual obligations by company
    • Security: Secured or unsecured
    • Interest rate can be fixed/floating/deep discount
    • More flexible compared to term loans as they offer variety of choices as regards maturity, interest rate, security, repayment and other special feature
    • Convertibility
    • Option : Can be with call or put feature
    • Redemption: Bullet payment or redeemed in installment
  • 15. TERM LOANS
    • Provided by FIs/banks
    • Repayable in less than 10 years
    • Can be in domestic/foreign currency, liability on FC loans translated to rupees for payment
    • Are typically secured against fixed assets/ hypothecation of movable properties, prime security / collateral security
    • Definite obligations on interest and principal repayment; interest paid periodically; based on credit risk and pegged to a floor rate
    • Carry restrictive covenants for future financial and operational decisions of the company, its management, future fund raising, projects, periodic reports called for
  • 16. TERM LOANS
    • Advantages
    • Interest on debt is tax deductible
    • Does not result in dilution of control
    • Do not partake in value created by the firm
    • Issue costs of debt is lower
    • Interest cost is normally fixed, protection against high unexpected inflation
    • Has a disciplining effect on management
  • 17. TERM LOANS
    • Disadvantages
    • Entails fixed obligation for interest and principal, non payment can even lead to bankruptcy/ legal action
    • Debt contracts impose restrictions on firm’s financial and operational flexibility
    • If inflation rate dips, cost of debt higher than expected
  • 18. RAISING LONG TERM FINANCE RAISING LONG TERM FINANCE
    • Initial Public Offer (IPO)
    • Secondary Public offer
    • Rights Issue
    • Bought out deals
    • Euro Issues
    • Private Placement
    • Preferential allotment
    • Venture Capital/ Private Equity transactions
    • Obtaining a term loan
  • 19. REFERENCE
    • Prasanna Chandra – Fundamentals of Financial Management
    • I M Pandey - Financial Management, 9 th edition
    • Thank You

×