A brief summary of long-term sources of finance that organizations can use to meet their capital requirements.

1. LONG TERM
SOURCES OF
FINANCE
Submitted By:
Nishant Kumar
MBA (Previous)
1911006

2. WHAT IS FINANCE??
Finance is a term broadly describing the study and system of
money, investments, and other financial instruments.
Some authorities prefer to divide finance into three distinct
categories: public finance, corporate finance, and personal
finance.
Other categories include the recently emerging area of social
finance and behavioral finance, which seeks to identify the
cognitive (e.g., emotional, social, and psychological) reasons
behind financial decisions.

3. Sources of Finance
Short Term
Sources
Long Term
Sources

4. LONG TERM SOURCES OF
FINANCE
Owners
Funds
Equity Share
Capital
Preference
Share Capital
Retained
Earnings
Borrowed
Funds
Debentures/
Bonds
Bank/Financial
Institutions
Venture Capital
Lease Financing

5. EQUITY SHARE CAPITAL
Share
• A share is an indivisible unit of capital, expressing the relationship
between the company and the shareholder.
Share Capital
• The denominated value of a share is its face value, and the total of
the face value of issued shares represent the capital of a company,
which may not reflect the market value of those shares.
Equity Share Capital
• Equity share capital refers to the portion of the company's money
which is raised in exchange for a share of ownership in the company.

6. FEATURES OF EQUITY SHARES
Permanent Capital
Flexible Rate of Dividend
Voting Rights
Limited Liability

7. TYPES OF EQUITY SHARE
CAPITAL
• These shares are those which a company issues to it’s
existing shareholders. The company issues such kind of
shares in order to protect the ownership rights of the
existing investors.
RIGHTS SHARES
• When the company issues shares to its shareholders in the
form of a dividend, we shall call them bonus shares
BONUS SHARES
• Sweat equity shares are issued to exceptional employees
or directors of the company for their exceptional job in
terms of providing know-how or intellectual property
rights to the company.
SWEAT EQUITY SHARE

8. PREFERENCE SHARE
CAPITAL
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.
If the company enters bankruptcy, preferred stockholders are
entitled to be paid from company assets before common
stockholders.

9. FEATURES OF
PREFERENCE SHARE
CAPITAL
Fixed Rate of Dividend
No Voting Right
Priority of Dividend and
Capital Repayment

10. TYPES OF PREFERENCE
SHARES
Cumulative and Non-Cumulative
• Preference shares that include a cumulative clause to protect the
investor against a downturn in company profits. If revenues are
down, the issuing company may not be able to afford to pay
dividends. Cumulative shares require that any unpaid
dividends must be paid to preferred shareholders before any
dividends can be paid to common shareholders.
• Whereas in non-cumulative shares such right is not available.
Participatory and Non-Participatory
• Participatory preference shares provide an additional profit
guarantee to shareholders. All preference shares have a fixed
dividend rate, which is their chief benefit.
• Whereas in non-participatory shares such benefit is not available

11. Convertible and Non-Convertible Shares
• Convertible shares are preferred shares that can be exchanged
for common shares at a fixed rate. This can be especially
lucrative for preferred shareholders if the market value of
common shares increases.
• Whereas this right is not available with non-convertible
preference share holders.
Redeemable and Non-Redeemable
• Redeemable preference shares are those shares where the issuer
of the share has the right to redeem the shares within 20 years of
the issuance at pre-determined price mentioned in the
prospectus at the time of issuance of preference shares and
before redeeming such shares the issuer shall assure that
redeemable preference shares are paid up in full and all the
conditions specified at the time of issuance are fulfilled.

12. RETAINED EARNING
Retained earnings is the cumulative amount of earnings
since the corporation was formed minus the cumulative
amount of dividends that were declared. Retained earnings is
the corporation's past earnings that have not been distributed
as dividends to its stockholders.

13. FEATURES OF
RETAINED EARNING
Cost of Financing
No Legal Formalities
No Dilution of Control

14. DEBENTURES/BOND
S
Debentures
• Debentures are a debt instrument used by
companies and government to issue the loan.
The loan is issued to corporates based on their
reputation at a fixed rate of interest.
Bonds
• All the secured debentures are bonds.

15. CHARACTERISTICS OF
DEBENTURES
Fixed Rate of Interest
Charge Against Profits
No Voting Rights
Claim on Assets

16. TYPES OF
DEBENTURES
First and Second Debentures
Redeemable and Non-redeemable Debentures
Bearer and Registered Debentures
Convertible and Non-Convertible Debentures
Secured and Unsecured Debentures

17. MEZZANINE
FINANCING
Mezzanine financing is a hybrid of debt and equity financing that
gives the lender the right to convert to an equity interest in the
company in case of default, generally, after venture capital
companies and other senior lenders are paid.
A mezzanine fund is a pool of capital which invests in
mezzanine finance for acquisitions, growth, recapitalization or
management/leveraged buyouts.

18. THE RETURN ON
MEZZANINE FINANCE
Cash interest
Payable in kind interest (PIK)
Ownership
Arrangement Fee

19. LOANS FROM BANKS AND
FINANCIAL INSTITUTIONS
A bank loan is an amount of money borrowed for a set period
within an agreed repayment schedule. The repayment amount
will depend on the size and duration of the loan and the rate of
interest.
The main disadvantage of a bank loan is the security that
usually has to be given to the bank over the assets of the
business. The bank becomes a secured creditor with collateral
over the business assets.

20. DEPRECIATION AS A
SOURCE OF FINANCE
Depreciation is the estimated money value of the reduction in
working capacity or in the intrinsic value of an asset due to
either use of the asset or due to mere efflux of time.

21. ARGUMENTS IN
FAVOUR
1. Depreciation is deducted from revenue to ascertain the
profit. Hence a part of revenue in form of depreciation lies
in the business and increases its working capital.
2. As sale of any asset or its part is treated as source of fund.
Depreciation (a part of fixed assets) is included in sale price
thus it is also treated as fund.
3. Depreciation provides major source of fund in Fund Flow
Statement. Fund from operation is obtained by adding
depreciation to net profit.

22. VENTURE CAPITAL
Venture capital provides long-term, committed share capital, to
help unquoted companies grow and succeed. If an entrepreneur
is looking to start-up, expand, buy-into a business, buy-out a
business in which he works, turnaround or revitalize a company,
venture capital could help do this.
Venture capital is invested in exchange for an equity stake in the
business. As a shareholder, the venture capitalist's return is
dependent on the growth and profitability of the business.

23. LEASE FINANCING
A lease can be defined as an arrangement between
the lessor (owner of the asset) and the lessee (user of the asset)
whereby the lessor purchases an asset for the lessee and allows
him to use it in exchange for periodical payments called lease
rentals or minimum lease payments.

24. HIRE PURCHASE
FINANCE
Hire Purchase is defined as an agreement in which the owner of
the assets lets them on hire for regular installments paid by the
hirer.
The hirer has the option to purchase and own the asset once all
the agreed payments have been made.
These periodic payments also include an interest component
paid towards the use of the asset apart from the price of the
asset.

25. EURO ISSUE
Euro issue is a name given to sources of finance or capital
available to raise money outside the home country in foreign
currency.

26. Foreign Currency
Convertible
Bonds(FCCBs)
Global Depositary
Receipts (GDRs)
American Depository
Receipts (ADRs)

27. GLOBAL DEPOSITARY
RECEIPTS (GDR’S)
Under GDR option, the company is permitted to issue equity
shares and companies can keep them in the custody of a
domestic custodian. The overseas depository bank, upon
instruction from domestic custodian bank, issues fresh
securities in the nature of GDR for the foreign market against
shares kept under local custodian bank.

28. AMERICAN DEPOSITORY
RECEIPTS (ADR’S)
The ADRs are similar to GDR in all major aspects; however
the differentiating feature is that the ADRs are more likely to
be listed and traded on New York Stock Exchange while
GDRs are usually listed on exchanges in Europe.

29. FOREIGN CURRENCY
CONVERTIBLE BONDS
(FCCB’S)
FCCBs are very similar to bonds in nature and can be converted
into an equity stock by the bond holder at a later date at a pre-
agreed price. These, like ADR and GDR, are issued by Indian
companies outside the home country in foreign currency. These
enjoy higher preference as they are issued as bonds, but at the
same time, do not dilute the holding on an immediate basis and
can help companies to raise money at a cheaper rate of interest.

31. REFERENCES
https://en.wikipedia.org/wiki/Share_(finance)
https://efinancemanagement.com/sources-of-
finance/equity-share-and-its-types
https://www.investopedia.com/terms/p/preference-
shares.asp
https://www.tutor2u.net/business/reference/finance-
venture-capital
https://efinancemanagement.com/sources-of-finance/hire-
purchase