Accounting

1. Secured / Mortgage Debenture: When the debentures are secured by charge on some assets of the
company is known as secured debentures. In case of default in the payment of interest or principal
amount debenture holders can sell the assets to satisfy their claims.
Unsecured / Naked Debenture: These debentures are issued without security. When the
debentures are issued solely on the creditability of the issuer.
Bearer / Unregistered Debenture: These are unregistered debentures which can be transferred by
mere delivery. They are easily transferable.
Registered / Transferable Debenture: the name, address and other holding details are registered
with an issuing company. They are not easily transferable.
Fixed Rate Debenture: These debentures have fixed rate of interest over the life of the debentures.
Floating Rate Debenture: The rate of interest payable on these bonds varies periodically depending
upon the market rate of interest payable on the gilt edged securities.
Zero Interest Bonds: Debentures which yield no interest that is the company does not pay any
interest on such debentures but can be converted into equity shares at a specified future date.
Zero Coupons Bonds (ZCB): They do not carry any coupon rate and are issued at a discount price
which is very less compared to the face value of the debenture. The benefit is the difference
between the issue price and the face value of the debenture. These are also called ‘Deep Discount
Bond’.
Secured Premium Notes: These are secured debentures which are redeemed at a premium over the
face value of the debenture. They are issued at par and redeemed at premium.
Callable Debenture / Bond: A type of bond that provides the issuer the right to redeem the bond
before the maturity date.
Legal Provisions / Rules for Redemption of Debentures
Conditions to be fulfilled for Redemption of Debentures as per Companies Act, 2013:
 An issue of secured debentures may be made, provided the date of its redemption shall not
exceed ten years from the date of issue.
 However, the period of redemption can exceed ten years, but not more than thirty years in
case of Infrastructure Finance Companies and NBFCs.
 A company may issue debentures with an option to convert such debentures into shares,
either wholly or partly, at the time of redemption.
 The company should create a Debenture Redemption Reserve Account out of the profits of
the company available for payment of dividend.
 The amount credited to DRR account should not be utilised by the company for any purpose
other than the redemption of Debentures.
 The amount of reserve created must be invested and such investment is called ‘Debenture
Redemption Reserve Investment’.

2.  At the time of redemption of Debentures, these investments are encashed and the amount
is used for redemption.
 No DRR is required for the debentures issued by Listed Companies.
 Companies that are required to create DRR should set aside 15% of the amount of
debentures maturing during the financial year in deposits with any scheduled bank.
 To ensure timely payment of interest and redemption of principal by a borrower all
debentures must be compulsory rated by one or more of the four rating agencies namely
CRISIL, FCRA, CARE & FITCH.

3. Whether to invest or not to invest in shares of a company:
A prospectus is a formal document that is required by and filed with the Securities and
Exchange Commission (SEC) that provides details about an investment offering to the
public. A prospectus is filed for offerings of stocks, bonds, and mutual funds.
The prospectus can help investors make more informed investment decisions because it
contains a host of relevant information about the investment or security.
 The prospectus provides details about the investment/security and the offering.
 A mutual fund prospectus contains details on investment objectives, strategies,
performance, distribution policy, fees, and fund management.
 The risks of the investment are disclosed in the prospectus.
A prospectus includes some of the following information:
 A brief summary of the company’s background and financial information
 The name of the company issuing the stock
 The number of shares
 Type of securities being offered
 Whether an offering is public or private
 Names of the company’s principals
 Names of the banks or financial companies performing the underwriting
Why Is a Prospectus Useful for Investors?
It is very useful to investors as it informs them of the risks involved with investing in the
security or fund. Although a company might be raising capital through stock or bond
issuance, investors should study the financials of the company to ensure the company is
financially viable enough to honor its commitments.
What To Look for When Investing in a Company ?
1. Start with the Chief Executive Officer. ...
2. Review the Company Business Model. ...
3. Consider What Competitive Advantages a Company Has. ...
4. Examine Revenue Trends and Price History. ...
5. Assess Net Income Growth Year to Year. ...
6. Examine the Profit Margin. ...
7. Compare Debt-to-Equity Ratio.
Review the Company Business Model-How a company makes money is referred to as its
“business model.” While there isn’t a single way to run a business, successful companies
should be positioning themselves to maximize profits.
What to look for: When researching a company’s business model, learn about its products
and services, target market, and the industry it’s competing in.

4. Some companies (such as Amazon) are going after a wider audience with low prices and
higher volume sales. Other companies (such as Apple) create exclusive devices that users
gladly pay a premium for.
Consider What Competitive Advantages a Company has-All businesses are competing for
their customers’ business, and a successful company will continually have an advantage over
the competition. A company with an edge over its competition is a promising sign of finding
a good stock to invest in.
Examine Revenue Trends and Price History-Revenue is the total sales of products and
services that a company brings in. Evaluating a company’s revenue history can show you
whether the company is growing or in decline. When reviewing revenue trends, a year-over-
year increase is a sign that companies are making the right moves and have strong sales
strategies. While increasing revenue each quarter isn’t always realistic, seeing a decline over
multiple consecutive quarters may be a troubling sign for investors.
Assess Net Income Growth Year to Year-Reviewing the net income (a company’s revenue
minus expenses and depreciation) can also be a good indicator of company growth
If a company has decreasing net income year-over-year, its growth may not be sustainable.
Examine the Profit Margin-Sometimes referred to as net profit margin, profit margin is the
percentage of revenue that the company takes in as profit (after expenses, interest, and taxes
have been paid). A company with steady profit margins means it is operationally efficient and
can keep prices low. Increasing profit margins may signal that a company is a leader in its
industry and can command higher prices for products or services. Steady and/or growing
profit margins are a good sign for investors, as those profits should reward stakeholders with
returns.
Compare Debt-to-Equity Ratio: When researching company financials, take a look at
the debt-to-equity ratio to see how well the company manages its total debt. To find the ratio,
compare the total debt to the total equity shareholders have in the company.
Being over-leveraged can limit a company’s choices in making business decisions. A good
rule of thumb is finding a company that has a 2:1 (or less) ratio.
Analyze Price-to-Earnings (P/E) Ratio: The price-to-earnings ratio is a key indicator of
whether a company’s stock is currently overpriced. To find the P/E ratio, compare the current
stock price to the annual earnings-per-share (EPS). A higher P/E ratio may be a sign that the
company is currently overvalued. A lower P/E ratio may be a sign that the company is
currently undervalued.
 Business (a description of the company's operation)
 Risk Factors
 Legal Proceedings
 Selected Financial Data

Management's Discussion and Analysis of the Financial Condition
Business description explains what the company does, who its customers are, and the
primary industry in which it operates.
A potential investor should assess how the company has performed over a period.
Also, the financial statements should indicate whether the balance sheet has become

5. stronger or weaker over time. The cash flow statement should show whether the
business has been a generator of cash or a user of cash. It is possible for firms to
report net income while, at the same time, having negative cash flow. Compare the
income statement with the cash flow statement for any red flags.
For example, steady cash flows are indicative of a healthy and thriving company, whereas
large fluctuations in cash flows could signal that a company is experiencing trouble. Large
amounts of cash on hand could indicate that more accounts are being settled than work
received.
Look for Unusual Risk Factors
Potential investors should also consider any risk factors associated with the company. One
risk factor is legal proceedings that the company might be facing. Litigation activities should
be disclosed in the company information in a section called Legal Proceedings.
Legal Proceedings section will reveal any significant lawsuits affecting the company.3
While legal issues should be assessed, they may not be as severe as they seem.