Long term source of finance

1. SUBJECT- FINANCIAL MANAGEMENT
LONG TERM SOURCES OF FINANCE
P. INDHUMATHI
ASSISTANT PROFESSOR OF COMMERCE
D.K.M. COLLEGE FOR WOMEN(AUTONOMOUS)
VELLORE
D.K.M COLLEGE FOR WOMEN,
AUTONOMOUS,VELLORE

2. LONG TERM FINANCE
Funds which are required in the firm for a period
of more than one year and used for purchase of
fixed assets such as land, building, machinery,
furniture, are termed as fixed capital.
Purpose of Long term finance
To finance fixed assets
To finance the permanent part of working capital
To finance growth and expansion of business.

3. Factors determining Long term finance
 Nature of Business
 Nature of goods purchased
 Technology used

4. Sources of Long term finance
 SHARES
Shares are units of equity ownership interest in a
corporation or financial asset that provide for an equal
distribution in any profits, if any are declared, in the form of
dividends.
EQUITY SHARES are long-term financing sources
for any company. These shares are issued to the
general public and are non-redeemable in nature.
Investors in such shares hold the right to vote, share
profits and claim assets of a company.
PREFERENCE SHARES more commonly referred
to as preferred stock, are shares of a company's stock
with dividends that are paid out to shareholders before
common stock dividends are issued.

5.  Retained earnings
Retained earnings (RE) is the amount of net
income left over for the business after it has paid out
dividends to its shareholders. ... Often this profit is
paid out to shareholders, but it can also be re-invested
back into the company for growth purposes. The
money not paid to shareholders counts as retained
earnings.

6.  DEBENTURES
A debenture is a type of bond or other debt
instrument that is unsecured by collateral.
Since debentures have no collateral
backing, debentures must rely on the
creditworthiness and reputation of the issuer for
support. Both corporations and governments
frequently issue debentures to raise capital or funds.

7. TYPES OF DEBENTURES
Redeemable Debentures
Irredeemable Debentures
Convertible Debentures
Non Convertible Debentures
Simple Debentures
Secured Debentures
Bearer Debentures
Registered Debentures

8.  PUBLIC DEPOSITS
Public deposits refer to the
unsecured deposits invited by companies
from the public mainly to finance working
capital needs. A company wishing to
invite public deposits makes an
advertisement in the newspapers.

9.  LOAN FROM FINANCIAL INSTITUTIONS
Financial institutions, otherwise known
as banking institutions, are corporations
that provide services as intermediaries of
financial markets. Broadly speaking, there are
three major types of financial institutions:
Depository institutions – deposit-taking
institutions that accept and manage deposits
and make loans,

10.  Lease financing is a contractual
agreement between the owner of the assets
(lessor) and user of the assets (lessee),
whereby the owner permits the user to
economically use the asset on the payment
of periodical amount which is in the form
of lease rent for a specific period of time.

11. TYPES OF LEASE
Financial Lease
Operating Lease
Sale and Lease Back
Leveraged Leasing
Direct Leasing

12.  Financial Leasing is an alternative way
of financing whereby a licensed leasing company
(the “Lessor') purchases an asset on behalf of its
customer (the “Lessee”) in return for a contractually
agreed series of payments which usually include an
element of interest.
 An operating lease is a contract that allows for the
use of an asset but does not convey ownership rights of
the asset. Operating leases are considered a form of
off-balance-sheet financing—meaning a leased asset
and associated liabilities (i.e. future rent payments) are
not included on a company's balance sheet.

13.  Sale and Leaseback is a simple financial
transaction which allows a person to lease an asset to
himself after selling it. Under the transaction, an
asset previously owned by the seller is sold to
someone else and is leased back to the first owner for
a long term. The transaction thus allows a person to
be able to use the asset and not own it.

14.  A leveraged lease or leased lender is a lease in
which the lessor puts up some of the money required
to purchase the asset and borrows the rest from a
lender. The lender is given a senior secured interest on
the asset and an assignment of
the lease and lease payments.
 Direct leasing is a two-party transaction that
involves an equipment supplier (manufacturer or
dealer ) and the asset 's user (lessee ), whereby the
equipment is produced or purchased by the supplier
and then leased directly to the customer by the
supplier, either as an operating or finance lease .

15.  Venture capital financing
Venture capital is a form of private equity and a type
of financing that investors provide to startup companies and
small businesses that are believed to have long-term growth
potential. Venture capital generally comes from well-off
investors, investment banks and any other financial
institutions.
 Hire purchase financing
Hire purchase is a method of financing of the fixed asset
to be purchased on future date. Under this method
of financing, the purchase price is paid in installments.
Ownership of the asset is transferred after the payment of the
last installment.

16.  Debt securitization
It is the process of converting mortgage loans
together with future receivables into negotiable securities
or assignable debt is called ‘securitization’.
The Securitization process involves packaging
designated pool of mortgages and receivables and selling
these packages to the various investors in the form of
securities which are collateralized by the underlying assets
and their associated income streams.
 International financing
International finance is the study of monetary
interactions that transpire between two or more
countries. International finance focuses on areas such as
foreign direct investment and currency exchange rates.
Increased globalization has magnified the importance
of international finance