Sources Of Fixed Upper-Case Missive Of The Alphabet Or Long Term Finance

Sources of Fixed Capital or Long Term Finance

The primary sources of fixed capital or long term finance are depicted below.

The sources of fixed uppercase or long term finance are:

1. Issue of Equity as well as Preference shares.
2. Issue of Right shares.
3. Private placement of shares.
4. Issue of debentures.
5. Term loans.
6. Retained earnings.
7. Lease financing.

Now let's briefly hash out each rootage of fixed uppercase or long term finance.

Source 1. Issue of shares

Issue of shares is the nearly of import rootage of fixed capital. Most companies collect fixed uppercase past times issuing shares.

Generally, at that topographic point are ii types of shares, these are depicted below.

These ii types of shares are briefly described every bit follows:

(i) Equity share:

1. Equity portion carries ownership rights of the company, as well as it doesn't acquit a fixed charge per unit of measurement of dividend.
2. Equity shares are to a greater extent than pop than preference shares. The confront value of an equity portion is decided past times the company.
3. This portion is too called ordinary share. This is because shareholders are the existent owners of the company.
4. The portion uppercase is too called risky capital. This is hence because at that topographic point is no guarantee for getting a dividend. Similarly, if the companionship winds upward or close down, at that topographic point is no guarantee for getting repayment of capital.

(ii) Preference share:

A preference portion carries ownership rights of the company, as well as it carries a fixed charge per unit of measurement of dividend.

A preference portion has ii primary advantages over equity shares viz.;

1. They larn a fixed charge per unit of measurement of dividend earlier the equity shares, and
2. If the companionship winds upward or close down, they larn repayment of uppercase earlier the equity shares.

Source 2. Issue of Right shares

Rights number of shares agency the companionship issues shares to its existing shareholders. According to provisions of law, a companionship must kickoff number shares to its existing-shareholders.

If the existing shareholders create non desire to purchase the shares, hence the companionship tin sell its shares to the outsiders.

The existing shareholders are given kickoff preference to purchase the company's fresh number of shares.

In an effect of rights number of shares, the portion uppercase increases only the numbers of shareholders create non increase.

Generally, rights number is really economical to collect fixed capital.

Source 3. Private placement of shares

Private placement of shares agency the companionship sell its shares direct to a small-group of investors similar bank, insurance companies, fiscal institutions, mutual funds, etc.

Here, the companionship does non sell the shares to the public.

It is a really uncomplicated as well as economical method every bit it does non involve number of a prospectus, no require of brokers as well as underwriters, etc.

Fixed uppercase is too collected from someone placement of shares.

Source 4. Issue of debentures

Debenture represents the borrowed uppercase of the company. Fixed uppercase is too collected from number of debentures.

Debenture holders larn involvement for the uppercase contribution made past times them to the company.

Debenture holders are the long-term lenders of the company.

Source 5. Term loans

Term loans are secured or unsecured loans obtained past times the company. The companionship has to pay involvement on these term loans.

The companionship gets term loans from banks as well as fiscal institutions similar Deutsche, HSBC, YES, ICICI, HDFC, AXIS, as well as hence on, past times submitting its projection analysis report.

The shareholders create non lose ownership command of the companionship past times obtaining term loans. Fixed uppercase is too collected from term loans.

Source 6. Retained earnings

Retained earnings is a business office of undistributed profits earned past times the company. Since, the companionship does non distribute all of its profits to the shareholders.

Company saves a business office of its profits. This saved profits is called retained earnings, self-financing or ploughing dorsum of profits.

It is really economical because no involvement payment is to endure made.

Retained earnings is the cheapest rootage of fixed capital.

Source 7. Lease financing

In lease financing, at that topographic point are ii parties, viz;

1. Lessor, who is the possessor of an asset, and
2. Lessee, who is the user of an asset.

The lessor is the possessor of an asset. Lessor gives the property on a lease-basis to the lessee. The lessee uses the property as well as inwards return, pays rent for using that property to the lessor.

The lessor as well as lessee move into into an agreement. This understanding is called lease-agreement.

The lessee require non spends money for purchasing the assets. Lessee hires (takes) the property on a lease or rent hence that he/she tin purpose the available coin for working uppercase requirements.

Lease financing is really uncomplicated as well as economical.

So, these are the sources of fixed uppercase or long term finance.