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Financial Management



                      Notes         3.2.7  Internal  Accruals

                                    This basically means what is being ploughed back in business i.e., retained earnings and the
                                    depreciation charge. While depreciation is used for replacing an old machinery, etc., retained
                                    earnings can be  used, for  finding other long-term requirements of the  business. The  major
                                    advantage of using this as a source of long-term finance are its easy availability, elimination of
                                    issue expenses and avoiding the problem of dilution of control (with equity source of fund). The
                                    disadvantage of this source is limited funds from this source, plus foregoing of dividends
                                    receipts may lead to higher opportunity costs for the firm.




                                        Task  Which of the following do you think is costliest of long-term sources of finance?
                                       Give reasons to support your answer.

                                       1.  Preference Share Capital
                                       2.  Retained Earnings
                                       3.  Equity Share Capital
                                       4.  Debentures
                                       5.  Capital raised through private placement.

                                    Self Assessment

                                    Fill in the blanks:
                                    3.   Ordinary shareholders are owners of the company and they undertake the ……….inherent
                                         in business.
                                    4.   Long-term funds from preference shares can be raised through a ……………..of shares.
                                    5.   A Zero Coupon Convertible Note (ZCCN) converts into………………...

                                    3.3 Issue of Securities

                                    A firm can raise capital from the primary market (both domestic and foreign) by using securities
                                    in the following ways:
                                        Public issue
                                        Rights issue
                                        Private placement
                                        Bought out deals
                                        Euro issues
                                    The apex body regulating the Indian securities market and the companies raising finance from
                                    it is the Securities and Exchange Board of India (SEBI). After the repeal of Capital Issues Control
                                    Act, 1947 in May 1992, SEBI was given the statutory powers to regulate the securities market.

                                    3.3.1  Public Issue
                                    Companies issue securities in the public in the primary market and get them listed in the stock
                                    exchange. The major activities in making a public issue of securities are as below:
                                        The firm should appoint a SEBI registered category I Merchant Banker to manage the
                                         issues. The lead manager will be  responsible for  all the pre and post issue  activities,




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