Very Short Question and Answers - Sources of Finance - Part 2

The capital obtained by the issue of shares is known as share capital.

Equity shares represent ownership capital or owner’s funds of a company.

Issuing equity shares means the company is raising ownership capital, giving shareholders ownership rights.

Preference share capital refers to capital raised by issuing preference shares.

Debentures are a form of debt with a fixed interest rate, while shares represent ownership in the company.

The fixed rate of interest guarantees debenture holders a specific income, regardless of company profits.

Banks extend loans through cash credits and overdrafts.

Cash credits, term loans, and purchase or discounting of bills.

A letter of credit is a document issued by banks guaranteeing payment to a seller upon meeting certain terms.

Financial institutions are established to provide finance to business organisations for growth and development.

They provide both owned capital and loan capital.

They provide finance for long and medium term requirements.

Owner’s funds refer to the capital contributed by the owners of a company, mainly through equity shares.

Preference shareholders have preferential rights to dividends and repayment of capital over equity shareholders.

Debentures carry a fixed rate of interest.

A company would seek long-term loan capital from financial institutions.

Financial institutions provide both owned and loan capital.

Banks also provide cash credit, overdrafts, discounting of bills, and letters of credit.

Equity shareholders get ownership rights in a company.

Debentures secure fixed interest income for investors.