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asked Aug 1, 2018 in Business Studies by Sakil Alam ( 64.0k points) sources of business finance Capital Markets . State the merits and demerits of public deposits and retained earnings as methods of business finance. 1 answer. Differentiate between ‘Shares’ and ‘Debentures’ as sources of long-term finance. However, it is true that the use of retained earnings as a source of funds does not lead to the payment of cash. High risk investment. If the business’s earnings go beyond what it needs to cover maintenance and growth, it has the option to distribute the excess to holders of common stocks, or make dividend payments. Retained Earnings. Q.4:- State the merits and demerits of public deposits and retained earnings as methods of business finance. Meaning of Capital Structure 2. Money Market Instruments. Write a short note on (a) Retained earnings (b) Trade credit. asked Feb 2 in Business Studies by Ujjawal01 (65.2k points) class-11; 0 votes. Explain the merits and demerits of retained earnings. There are no expenses on prospectus, advertising etc. 7. Debentures – meaning; kinds of debentures; advantages and disadvantages of debentures. 5 (6) In the previous chapter we have learned about definition of debt financing and few of the examples of debt financing. Companies normally retain 30 per cent to 80 percent of profit after tax for financing growth. Merits 6. Retained earnings have the following four components: Last Year Reserves: as we know, retained earnings is a cumulative part of net profit means every year company makes profit and retains a portion of it rather than distributing. Essay on Capital Structure of a Company Essay Contents: Essay on the Meaning of Capital Structure Essay on the Classification of Capital Structure Essay on the […] The merits and demerits of public deposits and retained earnings as methods of business finance are : MERITS OF PUBLIC DEPOSITS : (1) Generally the rate of interest on public deposit is higher than the rate of bank interest . PREFERENCE SHARE CAPITAL • Types of Preference shares • Merits and demerits • Features of Preference shares 9. The earnings which a company generates using the capital can be retained by the company to finance the increased working capital and other fund requirements. Coupon Bearing Instruments. It does not depend on the investors’ preference and market conditions. These deposits provide higher return than bank deposits. - The dividend policy of the company is in practice determined by the directors. Debentures and Retained Earnings - Merits and Demerits Class XI Bussiness Studies by Ruby Singh - Duration: 4:08. Merits of Retained Earnings: The management of many companies believes that retained earnings are funds which do not cost anything, although this is not true. Demerits of retained earnings: Ploughing-back of profits is possible only when there is stability in earnings. Demerits of commercial banks – 1) Investigation of company’s affairs before issuing loan. State the merits and demerits of public deposits and retained earnings as methods of business finance. 4. They then need to think about how they invest any retained earnings at the highest rate of return possible so that they grow the dividend in the future. Total public deposits cannot […] Retained earnings – meaning, merits and demerits. Merits of Retained earnings. State the merits and demerits of public deposits and retained earnings as methods of business finance. 4. asked Feb 19 in Business Studies by Ranjeet02 (51.4k points) sources of business finance; class-11; 0 votes. Merits of retained earnings: Retained profits reduce the dependence of company on external borrowings. Money Market. It is a short-term credit extended by suppliers of goods and services in the normal course of business, to a buyer in order to enhance sales. Financial institutions Describe three merits and three limitations of debentures as a source of long-term finance for a company. (iv) Positive Connotation. Profitable businesses also have to deal with heightened 21st century expectations that they balance profits with social and environmental responsibility. Distinction between shares and debentures. Indeed, each element of privatization—from its apparent cost-saving properties to its possible negative impact on minority workers—provokes strong reaction. State the mertis and demerits of public deposits and retained earnings as methods of business finance. As such it provides more income to depositors. 1 answer. As an internal source, it is more dependable than external sources. Write five reasons to support this statement. Use of retained profit does not involve any cost to be incurred for raising the funds,. Trade credit arises when a supplier of goods or services allows customers to pay for goods […] State the merits and demerits of public deposits and retained earnings as methods of business finance. State the merits and demerits of public deposits and retained earnings as methods of business finance. 13. This source has become very popular off late because companies offer higher interest than the interest offered by banks. 6. Merits of Retained Earnings: It is a permanent source of fund for the company. RETAINED EARNINGS FEATURES • Cost of financing • Floatation cost • Legal formality ADVANTAGES • Cheaper source of finance • Financial stability • Market value DISADVANTAGES • In proper utilization • Over capitalization • Low rate of dividend 10. Merits of commercial banks – 1) It is easily available. Loans … 1. Nonprofit organizations are generally in … Demerits. As an internal source, it is more dependable than external sources. 2. 3) It is also economical. Ans. 1. Merits of Retained earnings. Various sources of funds for business Highlighting their Advantages and Disadvantages Public deposits are raised by organisations directly from the public and which helps them to finance short and medium term requirements. Retained Earnings Definition: The Retained Earnings represent that portion of the equity earnings (left after deducting the tax and preference dividends), which is sacrificed by the equity shareholders and is ploughed back into the firm to reinvest these in the core business operations, such as paying off the debt obligations or purchasing a capital asset. A company develops an internal source of finance by having equity finance on board. 3. 2) They maintains secrecy about the business. Here we will be more specific to the topic and will be explain debt financing pros and cons … Advantages and Disadvantages of Debt Financing Read More » Their prices are volatile, fluctuating erratically. Funding and Investing. In other words, it is a sacrifice made by equity shareholders also referred to as internal equity. Does not involve any explicit cost; in the form of interest, dividend or floatation cost. OR Explain any five merits of ‘retained earnings’ as a source of finance. It does not depend on the investors’ preference and market conditions. Sometimes, earnings are retained to minimize the corporate profits so that the tax liability may be reduced. shareholders) at the end of a period (quarterly or yearly). Capital Markets. List of Disadvantages of Common Stocks. Nonprofit Advantages . Debt and Equity. Features of Public Deposits: The following are the features of public deposit: 1. 12. In other words, EPS assesses the ability of a company to generate net profits for the common shareholders. Provides greater degree of flexibility and freedom to the organization. Discount Instruments. ADVERTISEMENTS: After reading this essay you will learn about:- 1. The merits and drawbacks of privatization have been subjects of considerable debate among business-people, city leaders, and public employees alike. Debentures and Retained Earnings - Merits and Demerits Class XI Bussiness Studies by Ruby Singh - Duration: 4:08. Retained earnings are cheaper than external equity because the floatation costs, brokerage costs, underwriting commission are other issue expenses are eliminated. asked Feb 19 in Business Studies by Ranjeet02 ( 51.5k points) sources of business finance 5. 1. Profit-making businesses must make tough decisions such as whether to reinvest earnings in further growth or to distribute it to shareholders through dividend payments. Determinants 5. Use of retained profit does not involve any cost to be incurred for raising the funds,. In this chapter we are going to learn about advantages and disadvantages of debt financing. Risks are always associated with investing, but more of these are linked to common stocks. Classification of Capital Structure 3. OR ‘As a source of finance, retained earnings are better than other sources’. It obviates the other hassles of raising funds via other sources. ADVERTISEMENTS: Meaning: A company can accept deposits from the public to finance its medium- and short-term requirements of funds. Factors Affecting Capital Markets. Merits of Retained Earnings: - The management of many companies believes that retained earnings are funds which do not cost anything, although this is not true. What is meant by Special Financial Institutions (SFIs)? Goyal Bros. Prakashan - Video Lectures 104,714 views 4:08 However, it is true that the use of retained earnings as a source of funds does not lead to the payment of cash. 2. There is no fixed commitment to pay dividend on such funds. If companies were not to pay out a dividend there would be a risk that managers would get sloppy with the cash that built up and maybe embark on value-destroying acquisitions or make investments at ever-lower rates of return. Goyal Bros. Prakashan - Video Lectures 104,904 views 4:08 (b) Loan capital: debentures. Rates of interest offered on public deposits are usually higher than that offered on bank deposits. Relying on retained earnings eliminates the fear of ownership dilution and loss of control by the existing shareholders. explain the merits and demerits of public deposits and retained earnings as a source of finance - business studies - Now, the income-tax law has been amended in such a way that evasion of tax may not be possible by companies. The Society stand to benefit from the stability accorded to industrial sector by retained earnings. Public deposits: Public deposits refer to the unsecured deposits invited by companies from the public mainly to finance working capital needs. (c) Loans from commercial banks and Financial Institutions. (iii) No Ownership Dilution. A company wishing to invite public deposits makes an advertisement in the newspapers. Retained earnings is an internal source of finance available to the company. Trading on Equity 4. Risks involved in Money Market. Helps in increasing the market price of shares of the company. Money Markets. The continuously growing retained earnings show that company is making profit and building good fundamentals. 2) Banks may put restrictions and difficult terms and conditions. Retained earnings ultimately come back to the equity shares in the form of enhanced dividend or capital gains. After reading this article you will learn about the merits and demerits of self-financing. Merits and Demerits of: - Retained Earnings - Equity Capital - Preference Capital - Debenture Capital - Term Loans. The term “earnings per share” (EPS) refers to the dollar amount of the net income that has been earned by the owners of the common stock (a.k.a. State the merits and demerits of public deposits and retained earnings as methods of business finance. Answer:-Public Deposits The deposits that are raised by organizations directly from the public are known as public deposits. 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