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Financing Sources For Indian Companies: by Prof S.Moharana Department of Commerce Utkal University
Financing Sources For Indian Companies: by Prof S.Moharana Department of Commerce Utkal University
INDIAN COMPANIES
By
Prof S.Moharana
Department of Commerce
Utkal university
Sources of Finance
1. Equity Shares
2. Preference shares
3. Retained earnings
4. Bonds or securitized Instruments
5. Term loans/Bank loans
6. GDR and ADR
7. External Commercial Borrowings
8. Foreign Currency Convertible Bonds
9. Lease Finance
EQUITY SHARES (COMMON STOCK)
• OWNERSHIP CAPITAL
• PAR OR NO PAR STOCK
• BOOK VALUE
• ISSUE PRICE
• MARKET VALUE
RIGHTS OF EQUITY SHAREHOLDERS
• ISSUE EXPENSES
• SERVICING COSTS
• DIVIDEND OBLIGATION
• LEVEL OF RETURNS
• RISKINESS OF RETURNS
• POSSIBILITY OF APPRECIATION OF
MARKET PRICE
• EASE OF LIQUIDATING THE
INVESTMENT
• CAPITAL GAIN AND PERSONAL TAX
• DEGREE OF CONTROL
• INDUSTRY PROSPECTS
• FIRM’S PAST RECORDS
• COMPOSITION OF THE BOARD
MEMBERS
Preference Shares
• Hybrid security (debt +equity)
• Accountants treat it as equity
• Par value,
• Fixed rate of dividend-no bankruptcy if the
company defaults in paymnet
• Rate of dividend normally higher than the fixed
rate of interest on bonds
• Dividend only when the company earns income,
Usually cumulated-less risky for a company
• Ordinarily no voting right
• Cumulative vrs. Non cumulative
• Redeemable preference shares(permanent
preference shares)
• Participating preference shares
• Convertible preference shares.
• Adjustable rate preference shares
• Dividend not exempted from tax
• Preference shares also traded in the stock
market but traded within a narrow range
RETAINED EARNINGS
• NO FLOATATION COST
ARGUMENTS AGAINST TOO MUCH USE OF
INTERNAL FINANCE
FEATURES
» LOAN AMOUNT( NO FACE
VALUE,MAXIMUM AMOUNT
LIMITED)
» MATURITY PERIOD
» COUPON RATE-FIXED OR
FLOATING
» NEGOTIATED LOAN
» NON SECURITISED DEBT
» SECURITY
» PROJECT FINANCE OR ASSET
BASED FINANCE
» COVENANTS
COVENANTS OR RESTRICTIVE CONDITIONS