Sources of Long Term Finance
Sources of Long-term Finance
19.1 Introduction
As you are aware finance is the life blood of business. It is of vital significance for modern business which requires huge capital. Funds required for a business may be classified as long term and short term. You have learnt about short term finance in the previous lesson. Finance is required for a long period also. It is required for purchasing fixed assets like land and building, machinery etc. Even a portion of working capital, which is required to meet day to day expenses, is of a permanent nature. To finance it we require long term capital. The amount of long term capital depends upon the scale of business and nature of business. In this lesson, you will learn about various sources of long term finance and the advantages and disadvantages of each source.
19.2 Objectives
After studying this lesson, you will be able to: • • • • explain the meaning and purpose of long term finance; identify the various sources of long term finance; define equity shares and preference shares; distinguish between equity shares and preference shares;
30 :: Business Studies
• • • • • • • • •
explain the advantages and disadvantages of equity shares from the point of view of (a) shareholders and (b) management; define Debentures; enumerate the types of debentures; explain the merits and demerits of debentures as a source of long term finance; compare the relative advantages of issuing equity shares and debentures; explain the benefits and limitations of retained earnings; explain the merits and demerits of Public Deposits; outline the rules and regulations about inviting and accepting public deposits by companies; discuss the merits and demerits of long term borrowing from commercial banks.
19.3 Long Term Finance – Its meaning and purpose
A business requires funds to purchase fixed assets like land and building, plant and machinery, furniture etc. These assets may be regarded as the foundation of a business. The capital required
19.1 Introduction
As you are aware finance is the life blood of business. It is of vital significance for modern business which requires huge capital. Funds required for a business may be classified as long term and short term. You have learnt about short term finance in the previous lesson. Finance is required for a long period also. It is required for purchasing fixed assets like land and building, machinery etc. Even a portion of working capital, which is required to meet day to day expenses, is of a permanent nature. To finance it we require long term capital. The amount of long term capital depends upon the scale of business and nature of business. In this lesson, you will learn about various sources of long term finance and the advantages and disadvantages of each source.
19.2 Objectives
After studying this lesson, you will be able to: • • • • explain the meaning and purpose of long term finance; identify the various sources of long term finance; define equity shares and preference shares; distinguish between equity shares and preference shares;
30 :: Business Studies
• • • • • • • • •
explain the advantages and disadvantages of equity shares from the point of view of (a) shareholders and (b) management; define Debentures; enumerate the types of debentures; explain the merits and demerits of debentures as a source of long term finance; compare the relative advantages of issuing equity shares and debentures; explain the benefits and limitations of retained earnings; explain the merits and demerits of Public Deposits; outline the rules and regulations about inviting and accepting public deposits by companies; discuss the merits and demerits of long term borrowing from commercial banks.
19.3 Long Term Finance – Its meaning and purpose
A business requires funds to purchase fixed assets like land and building, plant and machinery, furniture etc. These assets may be regarded as the foundation of a business. The capital required