Finance

Long term finance

Short term Finance
Asset Based Financing


Long term finance
Equity share
Preference Share
Debentures


Equity
Ordinary shares / common shares
Owners/shareholders
Variable income security
Authorised share Capital : Maximum capital
that can be raised from the shareholders
(MOA)
Issued Share capital : Portion of authorised
share capital issued to the shareholders
Subscribed share capital : part of issued share
capital accepted by the shareholders


Equity Contd.
Paid up share capital : the amount of
subscribed share capital actually paid by
the shareholders
Paid up capital = issue price * no.of
shares outstanding
Issue price = par value + share premium
Networth = paid up share capital + reserve
and surplus

Features of Equity shares
Claim on ownership :residual
ownership
Claim on asset
Right to control
Voting rights
Proxy fights
Preemptive right
Limited liability


RIGHT ISSUE
Selling ordinary shares to the existing
shareholders
Rate less than the market value
Shareholders Can Forfeit but will
dilute the their ownership


BONUS ISSUE or STOCK DIVIDEND
and STOCK SPLIT
Issue new share to existing
shareholders
Increase the no.of shares outstanding
Bonus issue reduces the retained
earnings and increase the paid up
capital
Stock split has no such effect
PREFERENCE SHARE
Hybrid security
Dividend rate is fixed
No share in residual earnings
No voting rights
Dividend are non deductible for tax
purpose

Features of preference
share
Senior share
Fixed dividend : fixed income security
Cumulative dividend
Redemption
Sinking fund
Call feature
Convertibility
Convertible
Non convertible
Partly convertible preference share
convertible cumulative preference share

DEBENTURES
Long term promissory note
Pay interest and principal
Otherwise known as bond in India
Fixed income
Creditors of the firm
Secured Vs. Unsecured
debentures


Types of Debentures
Non convertible Debentures
Zero Interest Debentures
No Interest
Issued at high discounted issue price
Fully convertible debentures
Partially convertible debentures


Warrants
Issued along with debentures as
sweeteners
Entitles the purchaser to buy fixed
number of equity shares at particular
price during a specified period of time
Detachable Vs. Non Detachable
Right : No right until they exercise the
option


Term Loans
Bank or Financial Institutions
Asset Based Financing
Leasing : Contract between Lessor
(owner) and Lessee (User)
Right to use over an agreed period
Lessor claims the depreciation
Operating
Short term, cancelable
Tourist renting car, hotel room
Financial
Long term, non-cancelable
Plant & machinery
sale-and lease back lease



Hire purchase
Manufacturer, hiree and hirer
Manufacturer hiree hirer
Installment is paid to hiree
Ownership is transferred after
all the installments are paid
Hirer claims the depreciation


Project financing
Assets of the specific project
acts as a collateral for the loan
Installment paid from the cash
flows from the project

Venture Capital Financing
Financing small scale
enterprise and high
technology and risky
ventures
New ideas / new technology
Short term Finance
Trade Credit
Bank Credit
Factoring (same country)
Company core activity is receivables
collection
Financial institution (factor), selling
concern (client) buying concern
(customers)
Forfaiting (international trade)