finance mgmt. final presentation
TRANSCRIPT
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PRESENTED BY-ASHAR KHAN
DEVESH KHATTAR
GAURI JOHRINEHA AGARWALSUPRIYA GUPTA RACHNA SINGH
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Need for Long Term Finance:y Long term vs. short term(working capital) funds
requirements.
y For modernization, expansion, diversification; hugequantities reqd., irreversible decision.
y Asset-liability mismatch, interest rate risk, liquidity risk, if LT requirements, met by ST funds.
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Right Shares
PreferenceShares
Ordinary/Equity
Shares
Convertible
Secured
Registered
Redeemable
Sources
Shares
Debentures
TermLoans
RetainedEarnings
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TYPES OF SHARES :y
ORDINARY SHARESy
PREFERENCE SHARES
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ORDI NAR YSHARES y Ordinary shares or equity represent the ownership
position of a company.
y Holders of ordinary shares are the legal owners of thecompany.
y It is a source of permanent capital.
y Rate of dividend is not fixed.
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ADVA NTAGES of O RDI NAR YSHARES
y Ordinary share holders enjoys voting right.y Ordinary capital is the permanent capital for the
company .y Ordinary shares are easily transferable.y Company gives the bonus shares to the equity
shareholders at a free cost.y Equity shareholder are give first priority .
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How does one trade in shares ?
y Every transaction in the stock exchange is carried outthrough licensed members called brokers.
y To trade in shares, you have to approach a brokerHowever, since most stock exchange brokers deal invery high volumes, they generally do not entertainsmall investors.
y These brokers have a network of sub-brokers whoprovide them with orders.
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DISADVA NTAGES OF ORDI NAR YSHARES
y Risk bearing.
y No prefrential right.
y Higher cost.
y Ownership dilution.
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Preference shares:y A share which receives its dividend
before all other shares and which isrepaid first at face value if acompany goes into liquidation.Preference shares often have novoting rights.
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FEA TURES OF PRE FRE NCE SHARESy SINKING FUNDy REDEMPTIONy FIXED DIVIDENDy CONVERTIBILITY y PARTICIPATION FEATUREy CUMULATIVE DIVIDENDS
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ADVA NTAGES OF PRE FERE NCE SHARES
y RISKLESS LEVERAGE ADVANTAGE.y DIVIDEND POSTPONABILITY.y FIXED DIVIDEND .y LIMITED VOTING RIGHTS.y
MORE FLEXIBILITY.
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DISADVA NTAGES OF PRE FRE NCE SHARES
y No deductibility of dividends.y
Commitment to pay dividends
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The word debenture has been derived from a Latinword debere which means to borrow. Debenture is awritten instrument acknowledging a debt under thecommon seal of the company. The purchasers of debentures are called debenture holders.
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no voting rights.
Fixed interest.Redeemable.Maturity.
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F rom the Point of view of Security y Secured Debentures: Secured debentures refer to those debentures
where a charge is created on the assets of the company for the purpose of
payment in case of default.y U nsecured Debentures: Unsecured debentures do not have a specific a
charge on the assets of the company.F rom the Point of view of Tenure
y R edeemable Debentures: Redeemable debentures are those which arepayable on the expiry of the specific period either in lump sum or inInstallments during the life time of the company
y I rredeemable Debentures: Irredeemable debentures are also known asPerpetual Debentures These debentures are repayable on the on winding-up of a company or on the expiry of a long period.
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F rom the Point of view of Convertibility y Convertible Debentures: Debentures which areconvertible into equity shares These debentures are either
fully convertible or partly convertible.y N on convertible debentures- The debentures which
cannot be converted into shares or in any other securitiesare called nonconvertible debentures.
F rom Coupon R ate Point of viewSpecific Coupon R ate Debentures: These debentures areissued with a specified rate of interest, which is called the
coupon rate. The specified rate may either be fixed orfloating.y Z ero Coupon R ate Debentures: These debentures do not
carry a specific rate of interest.
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F rom the view Point of R egistrationy R egistered Debentures: Registered debentures
are those debentures in respect of which all detailsincluding names, addresses and particulars of holding of
the debenture holders are entered in a register kept bythe company.
y B earer Debentures: B earer debentures are thedebentures which can be transferred by way of delivery
and the company does not keep any record of thedebenture holders.
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no voting rights.Fixed payment of interest.Less costly.Reduced real obligation.
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Obligatory payments.Financial risk.Cash outflows.Common people cannot buy debentures.
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y Term loans which are obtained directly from banksand financial institutions. It is a long term debt.
y
Purpose for large expansion, modernization ordiversification.y Example- export import bank of India, ICICI, IDBI,
IFCI etc.
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Features of loany Maturity
y Security - Primary security , Secondary security
y Convertibility
y Repayment schedule
y Direct negotiation
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Industrial Loans:
( w.e.f -01/07/2010 ) Rate of Interest
Sr.No. Loan Amount
Rate of Interest% p.a. forrepayment
upto 5 Years
Rate of Interest % p.a. forrepayment above 5 Years
1UptoRs.25 Lac 13.00 14.00
2AboveRs.25 Lac
12.50 13.50
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Pros & Cons:Advantages:y Helpful making dream true.y Expanding in business diversification.
Disadvantages:y It is long term debt .y Fixed rate
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Retained Earnings:y Like an individual, companies also set aside a part of
their profits to meet future requirements of capital.
Companies keep these savings in various accountssuch asy General Reservey Debenture Redemption Reservey
Dividend Equalisation Reserve etc.
These reserves can be used to meet long term financialrequirements.
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y The portion of the profits which is not distributedamong the shareholders but is retained and is used in
business is called retained earnings or ploughing backof profits. As per Indian Companies Act., companiesare required to transfer a part of their profits inreserves. The amount so kept in reserve may be used tobuy fixed assets. This is called internal financing.
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B enefits:y Cheap Source of Capital :y No expenses are incurred when capital is available from
this source. There is no obligation on the part of thecompany either to pay interest or pay back the money.
y F inancial stability :y A company which has enough reserves can face ups and
downs in business. Such companies can continue with theirbusiness even in depression, thus building up its goodwill.
y B enefits to the shareholders:y Shareholders may get dividend out of reserves even if the
company does not earn enough profit. Due to reserves,there is capital appreciation, i.e. the value of shares go up inthe share market .
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Limitation :y Huge Profit : This method of financing is possible
only when there are huge profits and that too for many years.
y F ear of monopoly : Through ploughing back of profits, companies increase their financial strength.Companies may throw out their competitors from themarket and monopolize their position.
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