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Equity shares

1. Equity shares
2. Merits types of equity shares introduction contents & evaluation from the
companys view point features of equity shares demerits
3. What are equity shares? An equity share, commonly referred to as ordinary share
also represents the form of fractional or part ownership in which a shareholder, as a
fractional owner, undertakes the maximum entrepreneurial risk associated with a
business venture. The holders of such shares are members of the company and
have voting rights. The holders of such shares are members of the company and
have voting rights. A company may issue such shares with differential rights as to
voting, payment of dividend, etc.introduction
4. Cumulative preference shares. A type of preference shares on which dividend
accumulates if remains unpaid. All arrears of preference dividend have to be paid
out before paying dividend on equity shares. they also enjoy priority over the
equity shareholders in payment of surplus. But in the event of liquidation, their
claims rank below the claims of the companys creditors, bondholders / debenture
holders. preferred stock/ preference shares: owners of these kind of shares are
entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly
before dividend can be paid in respect of equity share. bonus shares: shares
issued by the companies to their shareholders free of cost by capitalization of
accumulated reserves from the profits earned in the earlier years. rights issue/
rights shares: the issue of new securities to existing shareholders at a ratio to those
already held. types of equity shares
5. Debentures: bonds issued by a company bearing a fixed rate of interest usually
payable half yearly on specific dates and principal amount repayable on particular
date on redemption of the debentures. Debentures are normally secured/ charged
against the asset of the company in favour of debenture holders. government
securities (g-secs): these are sovereign (credit risk-free) coupon bearing
instruments which are issued by the reserve bank of india on behalf of government
of india, in lieu of the central government's market borrowing programme. These
securities have a fixed coupon that is paid on specific dates on halfyearly basis.
These securities are available in wide range of maturity dates, from short dated
(less than one year) to long dated (upto twenty years). security receipts: security
receipt means a receipt or other security, issued by a securitization company or
reconstruction company to any qualified institutional buyer pursuant to a scheme,
evidencing the purchase or acquisition by the holder thereof, of an undivided right,
title or interest in the financial asset involved in securitization. participating
preference share: the right of certain preference shareholders to participate in
profits after a specified fixed dividend contracted for is paid. Participation right is

linked with the quantum of dividend paid on the equity shares over and above a
particular specified level. cumulative convertible preference shares: a type of
preference shares where the dividend payable on the same accumulates, if not
paid. After a specified date, these shares will be converted into equity capital of the
company.
6. Equity shares can be issued without creating any charge over the assets the
shareholders can participate in the management of the company through voting
rights. the obligation to repay the equity capital arises only at the time of
liquidation of the company. equity share is a permanent source of funds which
facilitate flexibility in usage of funds. company need not have the forced
obligation to pay dividend to equity shareholders. merits of equity shares
7. Equity shareholders have to bear all the losses at the time of liquidation.
Interruptions of many persons are involved in the company working. So, in some
cases, it creates equity shares always associated with the expectations of the
investors. It is practically a difficult task to fulfill the expectations of the investors.
demerits of equity shares: investors who have a desire to invest in safe or fixed
returns have no attraction of such shares. when the finance has to be raised for
less risky projects, then this is not a good source of raising finance. If only equity
shares are issued then the company can not avail the benefits of trading on equity.
delay in decision-making.
8. Features of equity shares 1. Right to income 2. Right to control 3. Pre-emptive
right 4. Right to liquidation
9. Equity earnings which are retained in firm tend to increase market value of
equity shares the equity investors have residual claim to the income of company.
The income left after satisfying the claims of all other investors belongs to equity
shareholder. This income is simply equal to profit after tax minus preference shares
dividend. The income of equity shareholders may be retained by the firm or paid out
as dividends. features of equity shares 1. Right to income : & earnings distributed
as dividend provide current income to equity shareholders.
10. Equity shareholders are owners of the firm. So they can elect the board of
directors2. Right to control & have right to vote on every resolution passed before
the company. The board of directors selects the management & management
controls the operations of firm. Hence, equity shareholders indirectly control the
operation of firm.
11. The pre- emptive right enables existing shareholders to maintain their
proportional ownership by purchasing the additional equity shares issued by
company. According to law, existing shareholders have first priority to purchase
additional shares on pro rata basis before the others. Ex. If company has 10,00,000

outstanding shares of equity3.pre-emptive right & proposes to issue 3,00,000


additional equity shares, an equity shareholder owing 100 shares has the first right
to purchase 30 of 3,00,000 new shares before those are offered to anyone else
12. Equity shareholders have a residual claim over the assets of the firm in the
event of liquidation. Claims of all others- debenture holders, secured lenders,
unsecured lenders, other creditors,4.right in liquidation & preference shareholders
are prior to the claim of equity shareholders.
13. No charge on property : the company is able to procure capital without creating
charges on its property, which remain free no obligation to pay dividend : equity
shares impose no obligation on the company to pay a fixed dividend to the equity
shareholders. They get dividend if adequate profits are available. evaluations from
the view point of company: advantages : permanent capital : it represents
permanent capital. Hence there is no liability for repayment. & can be utilized
when additional funds are required by the company.
14. High credit worthiness : the equity capital increases the companys financial
base wide scope of marketability : equity shares are lower denominations, hence
they can be purchased by persons of limited income also. So there is a wide scope
of marketability of equity shares. & high premium : the company can easily sell
equity shares on premium in times of boom. Even in such circumstances , people
are most eager to buy equity shares. Hence company can easilythus its borrowing
limit increase. Lenders generally lend in proportion to the companys equity capital.
By issuing equity shares, the company increases its financial capability. It can
borrow when it needs additional funds. & quickly raise fixed capital through equity
shares.
15. Floatation cost : floatation cost means cost of issuing equity shares, which is
higher than cost of issuing other types of securities. Underwriting commission ,
brokerage costs cost of equity : cost of equity is generally highest. The rate of
return required by equity shareholders is generally higher than rate of return
required by other investors. evaluations from the view point of company:
disadvantages: & interference in management : equity shareholders have voting
rights. Hence there may be interference in existing pattern of management.other
issue expenses are higher for equity capital.
16. Speculation : there are the dilution of control : sale of equity shares to
outsiders may result in dilution of control of existing shareholders dividend is not
tax deductible : equity share dividend is not tax deductible payment higher
chances of speculation because it is traded in stock market.

Financial management ppt


1. Financial management<br /> long term sources of finance with emphasis on
<br /> owned funds.<br /><ul><li>equity share capital
2. Preference share capital
3. Retained earning</li></li></ul><li>sources of finance<br />short term<br
/>long term<br />purchase of fixed assets<br />funding expansions<br
/>diversifications<br />trade credits<br />credit from suppliers<br />advance from
dealers<br />
4. Long term finance<br />borrowed funds<br />owned funds<br />shares<br
/>retained earning<br />
5. Shares<br /><ul><li> a share has been defined by the indian
companies</li></ul> act, 1956 <br /><ul><li> share means share in the share
capital of the </li></ul> company & includes stock except where a <br />
distinction between stock & share is expressed<br /> or implied. <br /><ul><li>
the liability of the shareholder is limited to the </li></ul> extent of the face value
of the shares.<br />
6. A shareholder- member of the company<br />numbers of members (membership
) in case of a company<br />public company<br />private company<br
/>minimum<br />7<br />2<br />maximum<br />50<br />unlimited<br />
7. Authorised capital<br />issued capital<br />unissued capital<br />subscribed
capital<br />unsubscribed capital<br />called up capital<br />uncalled
capital<br />reserve capital<br />calls in arrears (unpaid capital)<br />paid up
capital<br />
8. Shares<br />equity shares<br />preference shares<br />
9. Equity shares<br /><ul><li>risk bearing capital
10. No fixed rate of dividend
11. Right to vote
12. Owners of the company</li></li></ul><li>rights of equity shareholders<br
/><ul><li>the right to residual income
13. Right of control
14. Pre-emptive right

15. Residual claimants over assets</li></li></ul><li>advantages of equity


shares<br />to the issuing company-<br /><ul><li>permanent source of capital
16. No fix dividend
17. Creditworthyness of the company</li></li></ul><li>disadvantages of the
equity shares<br />to the issuing company-<br /><ul><li>not a tax-deductible
expense
18. Floatation cost is higher
19. Over capitalisation
20. Dilution of control</li></li></ul><li>advantages of equity shares<br />to the
shareholers-<br /><ul><li>highly profitable shres
21. Owners of the company
22. Limited liability</li></li></ul><li>disadvantages of equity shares<br />to the
shareholers-<br /><ul><li>risk capital
23. Control over the management
24. Fluctuation</li></li></ul><li>preference shares<br /><ul><li>preference
shares are those shares which enjoy </li></ul>priorities in the payment of dividend
as well as in <br /> the repayment of the capital<br /><ul><li>preference
shareholders are entitled to receive </li></ul>a fixed rate of dividend before the
dividend is <br />paid to the equity sharesholders.<br />
25. Types of perference shares<br />participating and non participating
shares<br />redeemable and irredeemable shares<br />cumulative and non
cumulative shares<br />convertible and non convertible shares<br />
26. Features of preference shares-<br /><ul><li>hybrid security
27. Preferencial rights
28. Preferencial right on fixed dividends.
29. Demand unpaid arrears
30. Voting rights
31. Conversion of shares
32. Right to share surplus profits</li></li></ul><li>advantages of owned funds<br
/><ul><li>indicates the owners stake and interest
33. Cushion for raising borrowed funds

34. Propotion
35. No obligation
36. Safety to the lenders
37. Right to active participation</li></li></ul><li>retained earnings<br />instead
of disrtibuting the entire profits to the <br />shareholers, company retains some
profits for <br />the purpose of-<br />accumulations of earnings<br />investment
in fixed assets<br />to meet working capital needs<br />
38. Merits of ploughing back of profits<br />to the company-<br
/><ul><li>economical
39. Efficiency and productivity
40. Confidence of shareholders
41. Enhances creditworthyness
42. Less financial risk
43. Repayments of debentures and term loans</li></li></ul><li><ul><li>reduces
the reliance
44. Helps expansion and diversification
45. Helps automation and modernisation
46. Used to meet working capital needs
47. Follows a stable dividend policy
48. Freedom to take their own decisions</li></li></ul><li>to the
shareholders<br /><ul><li>appreciation in share values
49. Bonus shares
50. Regular dividends
51. Security value</li></ul>to the society<br /><ul><li>increases capital
formation
52. Helps speedy development
53. Benefits to the consumers
54. Social welfare activities</li></li></ul><li>demerits of ploghing back of profits<br /><ul><li>danger of manipulation

55. Chances of over capitalisation


56. Improper use of retain earnings
57. No share of dividend
58. Lead to excessive speculations
59. Lead to more demends from employees
60. Concentration of economic power in few hands</li></li></ul><li>determinants
of internal financing<br /><ul><li>total earning of the enterprise
61. Taxation policy of the government
62. Dividend policy
63. Government atitudes and control
64. Other factors</li></li></ul><li>merits of internal financing<br />advantages
ro the company-<br /><ul><li>best and cheapest source of finance
65. Stable dividend policy
66. Increase in morale of management
67. Safety from trade cycles</li></li></ul><li>advantages to the
shareholder<br /><ul><li>incraese in the value of the share
68. Increase in equity
69. Increase in the collateral value of shares</li></ul>advantages to the
society<br /><ul><li>capital formation
70. Incraese in social welfare</li></li></ul><li>demerits of internal
financing<br /><ul><li>danger of monopoly
71. Fear of over-capitalisation
72. Loss of shareholders</li></li></ul><li>group members-<br />ankita joshi210<br />anujarane- 231<br />shradhangidate- 208<br />ranalnair- 223<br
/>prathameshkulkarni- 218<br />prafulshetty- 240<br />
73. Thank you<br />