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Sources of finance

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AAyush Baid

This document discusses various sources of finance for companies, including debt instruments like term loans and debentures, equity like ordinary shares, and hybrid instruments such as preference shares, warrants, convertible securities, and American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). Term loans are repaid over a set time period, debentures are unsecured debt, and ordinary shares represent equity ownership. Preference shares entitle holders to fixed dividends before ordinary shares, while warrants, convertible securities, and ADRs/GDRs are hybrid financial instruments.

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FUNDAMENTALS OF FINANCIAL MANAGEMENT SOURCES OF FINANCE Prepared by: AAyush Baid (BBA IB Evng.)
SOURCES OF FINANCE
DEBT : TERM LOANS A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. A term loan usually involves an unfixed interest rate that will add additional balance to be repaid.
DEBT: DEBENTURES A debenture is a type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond to secure capital.
EQUITY: ORDINARY SHARES An ordinary share represents equity ownership in a company and entitles the owner to a vote in matters put before shareholders in proportion to their percentage ownership in the company. Ordinary shareholders are entitled to receive dividends if any are available after dividends on preferred shares are paid.
HYBRID: PREFERENCE SHARES Preference shares, more commonly referred to as preferred stock. Preference share is a share which entitles the holder to a fixed dividend. Whose payment takes priority over that of ordinary share dividends.
HYBRID: WARRANTS A warrant is like an option. It gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. Warrants are transferable, quoted certificates, and they tend to be more attractive for medium-term to long-term investment schemes.
HYBRID: CONVERTIBLE SECURITIES A convertible security is a security that can be converted into another security. Convertible securities may be convertible bonds or preferred stocks that pay regular interest and can be converted into shares of common stock (sometimes conditioned on the stock price appreciating to a predetermined level).
HYBRID: ADRs & GDRs ADR and GDR are commonly used by the Indian companies to raise funds from the foreign capital market. A global depository receipt (GDR), also known as International Depository Receipt (IDR), is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. They are the global equivalent of the original American depository receipts (ADR) on which they are based.
Sources of finance

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Sources of finance

  • 1. FUNDAMENTALS OF FINANCIAL MANAGEMENT SOURCES OF FINANCE Prepared by: AAyush Baid (BBA IB Evng.)
  • 3. DEBT : TERM LOANS A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. A term loan usually involves an unfixed interest rate that will add additional balance to be repaid.
  • 4. DEBT: DEBENTURES A debenture is a type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond to secure capital.
  • 5. EQUITY: ORDINARY SHARES An ordinary share represents equity ownership in a company and entitles the owner to a vote in matters put before shareholders in proportion to their percentage ownership in the company. Ordinary shareholders are entitled to receive dividends if any are available after dividends on preferred shares are paid.
  • 6. HYBRID: PREFERENCE SHARES Preference shares, more commonly referred to as preferred stock. Preference share is a share which entitles the holder to a fixed dividend. Whose payment takes priority over that of ordinary share dividends.
  • 7. HYBRID: WARRANTS A warrant is like an option. It gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. Warrants are transferable, quoted certificates, and they tend to be more attractive for medium-term to long-term investment schemes.
  • 8. HYBRID: CONVERTIBLE SECURITIES A convertible security is a security that can be converted into another security. Convertible securities may be convertible bonds or preferred stocks that pay regular interest and can be converted into shares of common stock (sometimes conditioned on the stock price appreciating to a predetermined level).
  • 9. HYBRID: ADRs & GDRs ADR and GDR are commonly used by the Indian companies to raise funds from the foreign capital market. A global depository receipt (GDR), also known as International Depository Receipt (IDR), is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. They are the global equivalent of the original American depository receipts (ADR) on which they are based.