Best Methods of Raising Finance
Best Methods of Raising Finance
1. Public Issue of Shares: The Company can raise a substantial amount of fixed capital by issue of
shares- equity and preference. In India
2. Rights Issue of Shares: A Right issue is issue of shares to the existing shareholders of
the company through a Letter of Offer made in first instance to the
existing shareholders
on pro data basis. The shareholders have a choice to forfeit this right
partially or fully.
The company, then issue this additional capital to public. This is an
inexpensive method
as underwriting commission, brokerage are very small. Rights issue prevents
dilution of
control but it may conflict with the broader objective of wider diffusion
of share capital.
3. Private Placement of Shares: This is a method of raising funds from a group of
financial institutions and others who are ready to invest in the company.
4. Issue of Debentures: There are companies who collect long term funds by issuing
debentures- convertible, or, non convertible. Convertible debentures are
very popular in
the Indian market.
5. Long Term Loans: The company may also obtain long term loans from banks and
financial institutions like I.D.B.I., I.C.I.C.I., and so on. The funding of
term loans by
financial institutions often acts as an inducement for the investors to
sub- scribe for the
shares of the company. This is, because, the financial institutions study
the project report
of the company before sanctioning loans. This creates confidence in the
investors, and
they too, lend money to the company in form of shares, debentures, fixed
deposits, and so
on.
6. Accumulated Earnings (Reserves): The Company often resorts to ploughing back of
profits that, is, retaining a part of profits instead of distributing the
entire amount to
shareholders by way of dividend. Such accumulated earnings are very useful
at the time
of replacements, or, purchases of additional fixed assets.
Comments
Post a Comment