Before you can really start setting financial goals, you need to determine where you financially stand - David Bach.

y Finance : Lifeblood of business. y Comprising a vital significance for business. y To purchase fixed assets as well as meet daily expenses. y Long term capital-

Scale of business Nature of business

fixed capital. A part of the working capital is also of a permanent nature. 4 .Long term finance: y Meaning: To purchase fixed assets which are regarded as the foundation of a business . Funds required for working capital + fixed capital = long term finance.

y working capital. 5 .Need: y fixed assets. y growth and expansion.

y The type of goods produced.Influential Factors: y The type of business. y Technology been used in the business. 6 .

Shares Venture Capital Sources of Long term finance Debentures erm Loan 7 .

SHARES Capital of Company is called Share Capital. Each such unit of denomination is known as Share. There are two types of shares according to the Companies Act: Preference Share Equity Share 8 . which can be divided into transferable small denominations.

PREFERE CE S y Its Hybrid Security  Features: RES -Claims on income and assets -Sinking fund -Call feature 9 .

MERITS AN y Limited voting rights y Fixed dividend EMERITS y Commitment to pay dividend y Non-deductibility of y Dividend Postponability dividends 10 .

y SUBSCRIBED SHARE CAPITAL Part of Issued Share Capital. accepted by shareholders.Price per Equity Share. 11 y . offered to shareholders. SHARE PREMIUM. as stated in Memorandum of Association. y PAID-UP SHARE CAPITAL (ISSUE PRICE of equity share * NUMBER of equity share) y ISSUE PRICE PAR VALUE. y ISSUED SHARE CAPITAL Portion of Authorized Share Capital. a company can raise from its share holder.Amount in excess of the par value y TOTAL SHAREHOLDER EQUITY = PAID-UP SHARE CAPITAL + SHARE PREMIUM + RESERVES and SURPLUS.EQUITY SHARES y Some important terms: EQUITY CAPITAL Capital represented by equity shares. y AUTHORIZED SHARE CAPITAL Maximum amount of capital.

This income is split into two. y PRE-EMPTIVE RIGHT: it entitles the shareholders to maintain his proportionate share of ownership in the company.FEATURES OF EQUITY SHARES y CLAIM ON INCOME: Equity shareholders have a claim on residual income. 12 .dividends and retained earnings. y CLAIM ON ASSETS: equity shareholders have residual claim on company s assets in the case of liquidation. control the management through voting rights and right to maintain proportionate ownership. y VOTING RIGHTS: for election of directors and changes in memorandum of association. y RIGHT TO CONTROL: power to determine companies policies. elect directors on the board.

y e val e f e ity s ares es i t e st c ar et it t e i crease i r fits f t e c cer . y y There is no liability on the company y y If a company raises more equity capital . t e st c ity s are l ers ave reater say i t e a a e e t f a c a y as t ey are c ferre v ti ri ts. it leads to greater confidence among the investors & creditors. regarding payment of dividend on equity shares.MERITS To t y Hi s r ol rs: i case f To the Management: y Company can raise fixed capital by er rate f ivi e r fits. y A Equity capital is not required to be paid back during the life time of the company. 13 . ity s ares ca e easily s l i ar et. issuing equity shares.

leads to low value of shares in the stock market. 14 . shares. they are the very last to get refund of the money invested. the issuance of ordinary shares can change the ownership. In case of losses they do not get dividend and in case of winding up of company. y Speculation on the prices of equity y Over-capitalization which in turn closely held companies. y High degree of risk.DEMERITS To the shareholders y Uncertainly about payment of To the Management y Ownership dilution: In case of dividend.

. y Underwriting of issues: In an underwriting. etc. brokers.generally banks. the underwriters. 15 . A company with a track record is free to determine the issue price for its shares. the institutional investors like UTI. LIC etc.guarantee to buy the shares if the issue is not fully subscribed by the public. financial institution. y Private Placement: It involves sales of shares by the company to few selected investors.ISSUES OF EQUITY SHARES y Public Issue of Equity: It is raising of share capital directly from the public.

y The law in India states that the new equity shares must be first issued to the existing shareholders on pro rata basis.RIG TS ISS E F E ITY S ARES y A rights issue involves selling of ordinary shares to the existing shareholders of the company. 16 .

17 . y Decline in the wealth of the shareholders who fail to exercise their rights. because of the conversion of loan into equity. y Disadvantage for the companies whose shareholding is concentrated in the hands of financial institutes.MERITS AN DEMERITS y The existing shareholders control is maintained through the pro rata issue of shares. y Raising funds through Right Issue involves less floatation costs as the company can avoid underwriting commission.

Retained Earnings Depreciation 18 .INTERNAL A RUALS The internal accruals of a business are the accumulation of retained earnings and depreciation.

Retained Earnings The retained earnings make a portion of the equity earning that are reinvested in the business. 19 .

20 .Depreciation The term depreciation refers to the capital expenditure allocation to various time period for which the expenditure is expected to improve the financial condition of the firm.

 Funds provided to buy land.  REPAYABLE in generally 10 yrs.  SECURITY: o Assets procured by term-loans becomes security(prime security). 21 . o Other assets of firm may act as collateral security.TERM LOANS  Provided by BANKS and OTHER FI S. machinery and working capital etc.  FLEXIBLE OPTIONS to meet unanticipated demand or seasonal fluctuations. building.

 Imposes restrictive covenants. 22 .Merits & Demerits  No dilution of control.  Obligation to pay interest.  Interest paid is tax deductible expense.

Debentures y A debenture is a marketable legal contract where by the company promises to pay its owner. a specified rate of interest for a definite period of time and to repay the principal at a specific date of maturity 23 .

a trustee is appointed through a trust indenture deed y Interest y It carries coupon rate which can be paid annually. semiannually or quarterly y Interest is a tax.deductible expense 24 .Debenture Capital y Trust Indenture y When debenture is sold to investing public.

Continued . y Maturity y Debenture Redemption reserve Fund is formed y Call or Put Provision y Security y Most debentures are issued in India secured by charges of immovable property y Occasionally companies issue unsecured debentures. not backed by any asset but by general credit y To ensure investors. companies to take credit ratings 25 .

Types y Non Convertible Debentures y Fully Convertible Debentures y Partially Convertible Debentures 26 .

Merits & Demerits y Less Costly y No ownership dilution y Fixed payment of interest y Increases financial risk to shareholders y Carries restrictive covenants 27 .

VENTURE CAPITAL FINANCIN y VC is financing provided by healthy independent investors or financial institutions like banks which help new business to get started and reach next level of growth y Some of companies started by VC are y Fedral Express y Intel y Apple y Compaq 28 .

Computers & Software y Networking etc y Always eyes for industries which can be grown to larger y So if you planning to open a Grocery Store or a bar shop. simply forget financing by VCs 29 .INDUSTRIES THAT VC LOOKS FOR y Biotech y Medical Instruments y Healthcare.

SELECTION PROCESS FOLLOWED BY VC y Feasibility Study of the project y Future market potential. Technical Feasibility y Turnover Projections y Profitability Projections y Track Record of Entrepreneur y VC will carry Due Diligence 30 .

VENTURE CAPITAL INSTITUTION /FUND (VCI or VCF) y VCI: It is a financial intermediary between investor looking for high potential returns and entrepreneurs who need institutional capital to start with the business OR y It is pooled investment vehicle that primarily invests in financial capital of 3rd party y What benefits are earned by VCI? 31 .

and make money when the Co. technical support and human resource) to emerging and promising industries.HI H RISK HI H RETURN y VC provides risk capital and smart money (network marketing. gets listed 32 . In return y They participate in management of Company y They share equity capital y Earns by way of capital returns. Generally they invest in unlisted Co.

Bangalore y SIDBI Venture Capital Ltd (SVCL). today announced acquisition of ECAD Technologies Ltd (ECAD) by an overseas Company y As an early stage IT company.SIDBI Venture Capital Ltd and Karnataka IT Venture Fund exit from ECAD Technologies Ltd.. it was funded by SVCL together with Karnataka IT Venture Capital Fund (KITVEN) y Pursuant to this acquisition both have successfully exited from ECAD 33 .

IDBI e t re a ITVEN ( a i veste s.7.2 cr re a s.e it a r fit f 150% over t e ori i al i vest e t y 34 .y After rt ri AD f r a eri f f r years.5 cr re i.1 cr re res ectively) ave f lly iveste fr t eir i vest e t r a t tal c si erati f s.

HOW VC MADE AN EXIT y VC seeks 5-10 times of their investment in time horizon of 5-7 years y After making capital appreciation they make an exit through y Sale of Co. to some strategic buyer y Initial Public Offer To spread the risk and mitigate losses VCF invest in many projects simultaneously 35 .


y ByKaushik Hazra Loretta D souza Malay Srivastava Manan Goswami Navina Sehgal 37 .

H Vyas y Search Engine: Google 38 . M Pandey y Elements of Bookkeeping and accounting by R.Bibliography y Financial Management by I.

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