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Sources of Finance

How to Classify? • Capital required for a business can be classified under two main categories. • Fixed capital (Long term funds) and • Working capital (short term funds) .

Plouging back from profit • 4. Issue of Shares • 2.Bank Credit • 2. Customer advances • 3. Issue of Debentures • 2. Bank Loans • 4.FINANCIAL REQUIREMENTS • MEDIUM TERM • 1. Trade credit . Issue of Debentures • 3.Public deposits • 5. Issue of Preference shares • 3. Loans from FIs • SHORT TERM • 1. Loans from Financial Institutions • LONG TERM • 1.

Sources of Finance • Classification according to period – Long term • Shares • Debentures • Long-term loans etc – Short term • • • • Advances from commercial banks Public Deposits Advances from customers Trade creditors .

Kinds of shares • • • • Equity shares Preference shares Deferred shares.Issued to promoters Sweat equity.Issued to employees or directors at a discount or for consideration other than cash for providing know-how .

Kinds of debentures • • • • • Unsecured/ simple & Secured/mortgaged Bearer & Registered Redeemable &Irredeemable Convertible & Non convertible First & Second (Priority in payments) .

Distinction between Shares & Debentures Shares 1. Interest 3. Flexible rate of dividend 4. No voting rights .Charge against profit • 5. DividendAppropriation of profit 5. Fixed rate of interest • 4. Borrowed capital 2.Owned capital 2. Interest. Dividend 3. Voting Rights • • • • Debentures 1.