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Finance 11

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Aanya Gupta
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26 views8 pages

Finance 11

Uploaded by

Aanya Gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ghey of Preference Shares £ dividend: Preference sharehold. ive divi Send is paid to equity shareholders. ‘vit neta a any ent of capital: Preference shareholdershave > capital atthe time OO Se eeaaE Ag voting rights: Preference shareholders generally donot 5. No charge on assets: Preference shares are also issued witho 4 fxed assets of the company. «ppp Security Hybrid security is a single financial instrument which offers the of two or more different types of financial securities, Preference Shares are refer Se Fiybrid Secu rrities because they have features of both Equity Shares and Desi a « Like Equity Shares, Preference Shares get dividend only when the company ¢ profit; and me « Like Debentures, Preference Shares get a fixed rate of return. for"Types, Merits and Limitations of Preference Shares refer Power Booster. estes 4. Fe any Preferenti ntialrightas to the redemption "OY any voting rights, ut creating any charge on the Difference between Equity Shares and Preference Shares ar Eten Seer Face Value The face value of equity shareis generallylow. | The face value of preference share Is generally high. Fateofdvidend | The dividend rate varies depending upon the | Preference shareholders get fied rate of profits of the company. end. Fightto dividend | Equity dividend is paid after the payment of Preference Shares getaprioryoverequty preference dividend, shares for payment of dividend. Voting rights Equity shareholders enjoy voting rights in They donotcaryvotingightsexcept whet eps dividend remains unpaid for asPe petiod ee Degree of risk Equity shareholders assume a high degree of risk. Preference sharehok degree of tisk, ders Serena Refund of capital ‘At the time of winding up, refund of equity share capital is made after the refund of preference share capital. Preference shares m shares forretund of ap over ea “They are not redeemable during the lifetime They may be redeemed afierg Redemption ‘ofthe company (unless the company decides to buy-back its shares), Equity shares appeal to bold and risk-taking investors. rat the option ofthe company Pte Preference shares apy risk fearing investors. ‘Appeal to investors PP Peal 0 cautious ang Retained Earnings {Long-term Source ‘of Finance} ‘The entire earnings of a company are not distributed as dividends among the shareh ‘A reasonable part of it is retained as reserves or surplus. Retained Earnings refer to ia a profits which is kept as reserve for use in the future. Part of Important Points about Retained Earnings 1. Itis also known as ‘Internal Financing’, ‘Self-Financing’ or ‘Ploughing back of profit > Retained earnings are shareholders funds and there is no external liability, i.e. compa is under no pressure to pay back this amount. me 3, Retained earnings cannot be used by a newly established company and it has to rely on external sources of finance. 4. Theamountofretained earnings depends on many factors likenet profits, dividend policy, age of the organisation, etc. e Features of Retained Earnings ‘The main features of Retained Earnings a 1. Dependable Source: Retained earnings are more dependable than external sourcesas they donot depend on investors’ preference and market conditions and are permanent funds. 2, Economical: It is an economical method of financing as it does not involve any costin the form of interest, dividend or floatation cost. 3, No Dilution of Control: Retained earnings donot dilute the control as thereis no, increase in the number of shareholders. As funds are generated internally, there is greater degree of operational freedom and flexibility. 4, Conversion into Share Capital: The surplus retained earnings can be converted into share capital through issue of bonus shares. 5. Medium and Long-term Finance: Retained Earnings serves the purpose of medium and Jong-term finance for the business. e Cee trea in business: Itenhances the capacity of the business 0 absorb ! iden business shocks arising due to economic depression and uncertainty of the capital market. 4 sores ob of shares: Retai i res: Retained earnings increase the financial strength, x arket value city of the business. It may lead to in« rice of pa \crease in market p1 5 7 pn and earning cal ', spilit} the’ ‘end: A company with adequate surplus can pay stable rte of dividend uty oC polders even dur 2 sharehol ers even during insufficient profits. 5p equity rote retained amings refer Power Booster yo" rplus money of € 25,0000, which he wants to inv neal 1 erence shares: WO veal estate companies (Magic Estate and Seats Se y roe cel ines arelaunching their publicissue. Magic Estates coming up with a Pre a ar rence shares, while Skylark’ Enterprises is coming up ' with equity shares. Mayank is ft 4 issues: He consulted his friend Gauray, who isa portfolio: uD seta ve the money in Magic Estate ue to'Preferential Rights'of preference aad a ders: state the ‘Preferential Rights) stated by Gaurav, which convinced Mayank a fagic Estate «utd. has been successfully ma jn is good, the company has profits reinvested in the fad state its four features. has sul! rnufacturing electrical accessories for the past ten een managing all the financial requirements business. identify the source of finance being PPT educa gouRcES OF BORROWED a ain sources of worrowel funds are: 4, Public Deposits ‘Debentures and Bonds 5, Trade Credit 2 Loan from Financial Institutions ‘cial Banks 6. Inter-Corporate Deposits (ICD) nds {Long-term Source of Finance} term debt capital. According ent for raising long “Debenture includes debenture stock, bonds or any it, whether constituting @ charge on the assets of the errament of company evening @ del seal of the company, ‘common the loan, conditions. The amount of ty offered (if any) are ‘dearly mentioned by the company on tures a document or certificate, Finance Business g — A Stites ines Stites aoe e a, f Debentures . 4 Features of Fe Fund: Debentures constitute the Cee funds of a company, ™ ae : i mM] G _ ee holders are termed as creditors of the co} i y Ei ‘ ig, ». periodic Interest Payment: Debenture holders are pai rate of interest ay eriodi é i par. Ci intervals, say Six months or one ye y , Mi a a a : Payment of Interest: Payment of ee is a legal SOMPulsion 3 an 1 has to be paid whether the profits are earned of not. * 4. Nov ee Rights: Debenture holders do not have voting re they

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