This document summarizes various topics related to financial management including long term loans, public deposits, hire purchases, and leases. It provides details on each topic such as definitions, key features, advantages and disadvantages. Long term loans are used to finance fixed assets and expansion over 3-25 years. Public deposits allow companies to raise unsecured funds up to 25% of capital and reserves. Hire purchases allow customers to acquire assets by paying an initial installment and repaying the balance over time. Leases are agreements for lessees to use property for a specified period by paying installments, while the lessor remains the owner.

1. Financial Management
Topics:
 Long term Loans
 Public Deposits
 Hire Purchases
 Lease

2. Long Term Loans
 A form of debt that is paid off over an extended time frame that exceeds one year
in duration.
 Obtaining a long term loan provides a business with working capital that it can use
to purchase assets, inventory or equipment which can then be used to create
additional income for the business.
 A long-term loan runs for three to 25 years, uses company assets as collateral and
requires monthly or quarterly payments from profits or cash flow. The loan limits
other financial commitments the company may take on, including other debts,
dividends or principals’ salaries and can require an amount of profit set aside for
loan repayment.

3. Long-term loans are raised to meet the financial requirements of
enterprise / company for acquiring the fixed assets which include the
following :
 Land and site development
 Building and civil works
 Plant and machinery
 Installation expenses
 Miscellaneous fixed assets comprising vehicles, furniture and fixtures,
office equipment and so on.
In case of units to be located in backward areas, another element of
miscellaneous fixed cost includes expenditure to be incurred in infrastructure
facilities like roads, railway sidings, water supply, power connection, etc.,
Term-loans, or say, long-term loans are also required for expansion of
productive capacity by replacing or adding to the existing equipment

4. Advantages:
 Long term loan provides an opportunity to the state to under-take
large projects.
 It provide a very good opportunity for the commercial banks and
the insurance companies to invest their surplus funds.
 It can be repaid by the government by the time which is favorable or
convenient to it. It can also convert these loans at a lower rate of
interest later on.
 The company can enjoy tax saving on interest on debt.

5. Disadvantages:
 Interest on debt is permanent burden to the company.
 Debt is the most risky source of long-term financing.
 The future generation is burdened with a losing concern.
 Only large scale, creditworthy firm, whose assets are good for
collateral can raise capital from long-term debt.

6. Public Deposits
 Public deposits refer to the unsecured deposits invited by
companies.
 A company can invite public deposits for a period of six
months to three years.
 Public deposits of a company cannot exceed 25 per cent of its
share capital and free reserves.
 The company having public deposits is required to set aside 10
per cent of deposits maturing by the end of the year.

7. Advantages:
 It is simple form of financing.
 Less costly than other method of financing.
 No creation of any charges.
 Advantages in trading on equity.
 It enjoys tax exemption.

8. Disadvantages
 It is unreliable.
 It is an unsound source of finance.
 Uncertainty.
 Temporary finance.
 Limited funds.

9. Hire Purchases
 A hire purchase known as installment plan in North America.
 It is an arrangement whereby a customer agrees to a contract to
acquire an asset by paying an initial installment and repays the
balance of the price of the asset plus interest over a period of
time.

10. The main features of hire purchase
finance are:
 It becomes the owner of the asset after paying the last
installment.
 Every installment is treated as hire charge for using the asset.
 Hire purchaser can use the asset right after making the
agreement with the hire vendor.
 The hire vendor has the right to repossess the asset in case of
difficulties in obtaining the payment of installment.

11. Advantages:
 Financing of an asset through hire purchase is very easy.
 Hire purchaser becomes the owner of the asset in future.
 Hire purchaser gets the benefit of depreciation on asset hired
by him/her.
 Hire purchasers also enjoy the tax benefit on the interest
payable by them.

12. Disadvantages:
 Ownership of asset is transferred only after the payment of the
last installment.
 The magnitude of funds involved in hire purchase are very
small and only small types of assets like office equipment’s,
automobiles, etc., are purchased through it.
 The cost of financing through hire purchase is very high.

13. Lease
 A written agreement to use the property for a specified period of
time.
 The lessee(person who taking out a lease) agrees to pay flexible
installments over an agreed period.
 The lessor, who remains the owner of asset(items) throughout the
period of the lease.

14. Advantages:
 Shifting the risk of technological obsolescence to the owner
risk.
 Easy source of finance.
 Enhance liquidity.
 Maintenance and specialized services.
 Improved performance as reflected improved turnover.
 Lower administrative cuts compare to other source of finance.

15. Disadvantages:
 Alteration and change in the asset.
 Terminal value of the asset.
 To make lease payments even if the asset become obsolete.

16. Lease Agreement:
 The rights and obligations of each party with respect to an
apartment, rental unit, or other real property owned by the
landlord and used by the tenant.
 An instrument conveying the possession of real property
for a fixed period in consideration of the payment of rent.

17. Presented by:
Dandu Shaik Vaseem Akram