Sources Of Finance

SOURCES OF FINANCE

SOURCES OF FINANCE

ACCORDING TO PERIOD

SHORT TERM MEDIUM TERM LONG TERM

ACCORDING TO MODE OF FINANCING

•EXTERNAL FINANCING •INTERNAL FINANCING •LOAN FINANCING

ACCORDING TO OWNERSHIP

•OWNED CAPITAL •BORROWED CAPITAL

ACCORDING TO SOURCE OF FINANCE

•INTERNAL SOURCES •EXTERNAL SOURCES

CLASSIFICATION OF CORPORATE SECURITIES

OWNERSHIP SECURITIES

CREDITORSHIP SECURITIES

•DEBENTURES

ORDINARY OR EQUITY SHARES

PREFERENCE SHARES

NO PAR STOCK

FEATURES OF EQUITY SHARES      

Maturity Right to income Claim on assets Right to control Pre-emptive Rights Limited Liability

PREFERENCE SHARES  Preference over the payment of dividend  Preference in the payment of capital at the time of liquidity

TYPES OF PREFERENCE SHARES        

Cumulative preference shares Non-cumulative preference shares Redeemable preference shares Irredeemable preference shares. Participating preference shares Non-Participating preference shares Convertible preference shares Non-Convertible preference shares

FEATURES OF PREFERENCE SHARES

 Maturity: To Redeem preference shares : the following conditions are to be fulfilled: 1) must be fully paid is

2) either from accumulated profits or fresh issue of shares. 3) if from accumulated profits capital redemption reserve created. 4) if at premium then either out of accumulated profits or share premium account

 Claim on income.  Claim on assets  Control

DEBENTURES  An acknowledgement of Debt.  A long term promissory note for raising loan capital

simple

Convertible Secured or Mortgaged

Bearer

First and Second Deb.

registered

TYPES OF DEBENTURES Redeemable Zero Interest Bonds

Irredeemable Zero Coupon Bonds

Sweat equity  It must be of class of shares already issued.  It must be authorized by a special resolution in general meeting.  The sweat shares can be issued only one year after the company is entitled to start its business.  Equity shares must be listed on a stock exchange.  A subsidiary of an Indian company can issue sweat equity to Indian employees even if the sub. Is incorporated out of India.  All the limitations, restrictions and provisions relating to equity shares shall be applicable to the sweat equity.

LISTING OF SECURITIES  Listing means admission of the securities to dealings on a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi governmental and other financial institutions/corporations, municipalities, etc. The objectives of listing are mainly to :  provide liquidity to securities;  mobilize savings for economic development;  protect interest of investors by ensuring full disclosures.

LOAN FINANCING Indigenous bankers

Accrued Expenses.

Advances Trade Credit

Installment Credit

Factoring

SHORT TERM LOANS AND CREDITS

Commercial Paper Deffered Expenses

Commercial banks

Public Deposits

PUBLIC DEPOSITS Govt. Regulation on Public Deposits 2. Ceiling on Deposits 3. Maturity of Deposits 4. Form and Particulars of Advertisement. 5. Form of Application for Deposits. 6. Furnishing of Receipts to Depositors. 7. Register of Deposits. 8. Interest on Deposits. 9. Ceiling on Brokerage 10. Repayment of Deposits 11. Maintenance of Liquid Assets. 12. Return of Deposits.

Evaluation of Public Deposits    

As a Source of Corporate Finance Cost of Funds Availability of Alternative Sources of Finance Convenience in Raising Funds

Advantages of Public Deposits  It is a less costly method for raising short and medium term funds for meeting working capital requirements.  More simple, more convenient and less bothersome  As there is no need of creation of any charge on the assets of the company for raising funds through it.  A company can take advantage of trading on equity as the maturity period of deposits and the rates of interests are fixed.  A company can avail this source when other sources are not available

INVESTOR’S POINT OF VIEW:  High Rate of Interest paid by the companies  Maturity period