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    Sources of Finance

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    Aneesh Saji
    Long term sources of finance include equity capital, preference capital, internal accruals, term loans, debentures, and foreign sources. Equity capital includes authorized, issued, subscribed, and paid-up capital as well as par value, issue price, book value, and market value. Preference capital is a hybrid form of financing that has equity features like dividends paid from distributable profits and debenture features like a fixed dividend rate and redeemable capital. Term loans have maturities, security provisions, and repayment schedules. Debentures differ based on features like interest, security, maturity, and convertibility. Raising long term finance involves methods like initial public offerings, right issues, private placements,

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    Sources of Finance

    Uploaded by

    Aneesh Saji
    189 views33 pages
    Long term sources of finance include equity capital, preference capital, internal accruals, term loans, debentures, and foreign sources. Equity capital includes authorized, issued, subscribed, and paid-up capital as well as par value, issue price, book value, and market value. Preference capital is a hybrid form of financing that has equity features like dividends paid from distributable profits and debenture features like a fixed dividend rate and redeemable capital. Term loans have maturities, security provisions, and repayment schedules. Debentures differ based on features like interest, security, maturity, and convertibility. Raising long term finance involves methods like initial public offerings, right issues, private placements,

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    Long term sources of finance include equity capital, preference capital, internal accruals, term loans, debentures, and foreign sources. Equity capital includes authorized, issued, subscribed, and paid-up capital as well as par value, issue price, book value, and market value. Preference capital is a hybrid form of financing that has equity features like dividends paid from distributable profits and debenture features like a fixed dividend rate and redeemable capital. Term loans have maturities, security provisions, and repayment schedules. Debentures differ based on features like interest, security, maturity, and convertibility. Raising long term finance involves methods like initial public offerings, right issues, private placements,

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    189 views33 pages

    Sources of Finance

    Uploaded by

    Aneesh Saji
    Long term sources of finance include equity capital, preference capital, internal accruals, term loans, debentures, and foreign sources. Equity capital includes authorized, issued, subscribed, and paid-up capital as well as par value, issue price, book value, and market value. Preference capital is a hybrid form of financing that has equity features like dividends paid from distributable profits and debenture features like a fixed dividend rate and redeemable capital. Term loans have maturities, security provisions, and repayment schedules. Debentures differ based on features like interest, security, maturity, and convertibility. Raising long term finance involves methods like initial public offerings, right issues, private placements,

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    SOURCES OF LONG TERM

    FINANCE
    • Finance is the life blood of a business

    Sources of finance:-

    • Short term sources


     
    • Long term sources
    Purpose of long term finance:-

    • To finance fixed assets

    • To finance the permanent part of working capital

    • To finance the growth and expansion of a business


     
    Factors determining long term sources of
    finance:-

    • Nature of business

    • Nature of goods produced

    • Technology used
    EQUITY CAPITAL

    TERMS:

     Authorized, Issued, Subscribed & Paid- up Capital.

     Par/ face Value, Issue Price, Book Value, Market


    Value.
    Rights Of Equity Share Holders:

     Right to Income

    Right to Control

     Pre – emptive Right

    Right in Liquidation
    EQUITY CAPITAL
    PREFERENCE CAPITAL

    • Hybrid form of Financing


    • Equity Features:
    -out of distributable profits
    -dividends not tax deductible
    -Priority over Equity shares in case of bankruptcy

    • Debenture features:
    -dividend rate is fixed
    -capital is redeemable
    -normally no right to vote
    PREFERENCE CAPITAL
    Retained Earnings Depreciation
    INTERNAL ACCRUALS
    • TERM LOANS

    • Maturities
    • Security
    • Provided by Foreign Institutes/ Bank
    • Repayment schedule
    • Restrictive Covenants
    • Convertibility
    Term Loan Contd…
    DEBENTURES

    • Interest
    • Security
    • Maturity & Redemption
    • Options
    • Convertibility
    Few types of Debenture

    • Non – convertible debentures

    • Fully convertible debentures

    • Partly – convertible debentures


    Debentures Contd…
    Other Important Sources of financing

    • Leasing
    • Hire Purchase
    • Asset Securitization
    • Government Subsidies
    • Lottery funding
    • Selling asset
    • Convertible bonds eg:British Airways has
    announced that it is to raise £300m of new funding via a convertible bond issue, as part of a
    £600m refinancing.
    Foreign Sources

    • Foreign Collaborators

    • International Financial Institutions:

    • Non-Resident Indians
    Comparison of Various sources of Long – term Financing

    Cost Dilution of Risk Restraint on


    Control managerial
    freedom

    Equity High Yes Nil No


    Capital
    Retained High No Nil No
    Earning
    Preference High No Negligible No
    Capital
    Term Loans Low No High Moderate

    Debentures Low No High Some


    BENEFITS OF LONG TERM
    FINANCING

    VIDEO
    Raising Long Term Finance

    • Initial Public offering


    • Right Issue
    • Private Placement
    • Preferential Allotment
    • Obtaining a Term Loan
    • Venture Capital
    Initial Public Offering

    • Decision to go Public
    • Benefits
    • Cost
    • Eligibility
    • Book Building process
    Right Issue

    • Issue of capital to existing shareholders


    • Offer made on pro rata basis
    • Right shares are tradable, may be sold in open market.
    • Comparison with Public issue: familiar investors,
    hence likely to be more successful
    • Less floatation costs
    • Lower pricing to benefit shareholders
    Private Placement

    • Sale of securities directly to wholesale investors like FIs,


    banks, MFs, FIIs, PE funds etc.(QIP’s)
    • Called private placement in equity/equity related instruments,
    in unlisted companies and in all cases of debt
    • Called preferential allotment in case of unlisted companies
    for equity/equity related instruments
    • Different from reservations made for such QIBs out of a
    public issue
    • Subject to SEBI regulations on pricing, lock in period, open
    offer to be made to public
    • QIB placement guidelines recently issued by SEBI for
    compliance and disclosures
    Obtaining a term loan

    • Submission of loan application


    • Initial processing of loan application
    • Project Appraisal
    • Issue of Letter of Sanction
    • Acceptance of terms and conditions by the borrowing
    unit
    • Execution of loan agreement
    • Disbursement of loan
    • Creation of security
    • Monitoring
    Venture Capital

    • Equity Participation

    • Long term investment

    • Participation in management
    Process of Venture Capital Financing
    CASE STUDIES:

    1)
    A large plc is planning on moving a major part of its
    production facility to Cornwall.
    It has identified a site near a former chalk pit that is now not
    used.
    The estimated cost of the facility is £4.5 million.
    2)
    A medium-sized engineering firm with an annual return of
    over £ 2.5 million has decided to install a new piece of
    machinery to help improve its productivity. The equipment
    needs to be housed in anew building to be construed on the
    site. The forecast of the building is £ 150,000 and the
    equipment £400,000
     
    Conclusion
    • During the research of this assignment we have
    concluded that
    • many type of finance can be used at one particular
    time.
    • Depending on the type of company and they should
    try to get the best possible finance deal
    • to save the borrower on the risk of borrowing high
    amount and
    • also to pay high amount on the interest rate.
    Business situations
    VIDEO
    THANK U..!!!
    For being present inspite of
    SWINE FLU..!

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