Risk and sources of finance

Jun 27th, 2015
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Abraham Lincoln University
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Generating increasing sales – increasing revenue to impact on overall profit levels Use of retained profit – used to reinvest in the business Sale of assets – can be a double edged sword – reduces capacity?

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SOURCESSOURCESOFOFFINANCEFINANCEFinance Long term finance Short term Finance Asset Based FinancingLong term finance Equity share Preference Share DebenturesEquityOrdinary shares / common sharesOwners/shareholdersVariable income securityAuthorised share Capital : Maximum capital that canbe raised from the shareholders (MOA) Issued Share capital : Portion of authorised sharecapital issued to the shareholders Subscribed share capital : part of issued share capitalaccepted by the shareholdersEquityContd. Paid up share capital : the amount of subscribedshare capital actually paid by the shareholders Paid up capital = issue price * no.of sharesoutstanding Issue price = par value + share premium Networth = paid up share capital + reserve andsurplusFeatures of Equity sharesClaim on ownership :residual ownershipClaim on assetRight to controlVoting rights Proxy fights Preemptive right Limited liabilityRIGHT ISSUE Selling ordinary shares to the existingshareholders Rate less than the market value Shareholders Can Forfeit but willdilute the their ownershipBONUS ISSUE or STOCK DIVIDENDand STOCK SPLIT Issue new share to existingshareholders Increase the no.of shares outstanding Bonus issue reduces the retainedearnings and increase the paid upcapital Stock split has no such effectPREFERENCE SHARE

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