Sources of finance

Sources of finance are of two types:

1. Own fund

2. Barrowed fund

Under own fund we have:

1. Equity share capital

2. Preference share capital

3. Reserves and surplus or retained earnings.

Under borrowed fund we have :

1. Debentures

2. Long term loan

3. Public deposits

1.     Equity share capital

Whoever contributes to equity share capital are called equity share holders.

Equity share holders are called the owners of the companies.

Equity share holders will receive dividend

.

Dividend is paid only in case of profit conditionally.

The rate of dividend is not declared or fixed.

Issue of equity share capital

Issue at par

Issue at premium

Issue at discount

2.     Preference share capital

Whoever contributes to the preference share capital they are called preference share holders.

Preference share holders are not the owners.

Preference share holders will receive the dividend.

The rate of dividend is fixed.

The dividend will be first paid to preference share holders and then to equity share holders.

Issue of Preference share capital

Issue at par

Issue at premium

Issue at discount.

Types of Preference share capital

Redeemable preference share capital

Non redeemable preference share capital

Convertible preference share capital

1. fully convertible preference share capital
2. partly convertible preference share capital
3. cumulative preference share capital
4. Non cumulative preference share capital.

3.     Reserves and surplus or retained earnings.

It is for existing business not for new business.

Borrowed fund

Debentures

Whoever contribute to debentures are called debenture holders.

Debenture holders are not the owners.

They will receive the interest irrespective of profit or loss.

Rate of interest is fixed.

Issue of debenture

Issue at par.

Issue at premium

Issue at discount.

Types of debentures

Convertible debenture

Partly convertible debentures

Fully convertible debenture

Non convertible debenture

Long term loan

Loan from financial institutions and banks.

Long term loan interest is paid irrespective of profit or loss.

Rate of interest is fixed.

Public deposits

Whoever contribute to public deposits are called public depositors.

The rate of interest is fixed.

Thank you

Deepti !

• Written by deepti.
• In category Business Management.
• 15 years ago.

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