7. Use of retained profit does not involve any cost to be incurred for raising the funds,. Goyal Bros. Prakashan - Video Lectures 104,904 views 4:08 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. There is no fixed commitment to pay dividend on such funds. Sometimes, earnings are retained to minimize the corporate profits so that the tax liability may be reduced. Nonprofit organizations are generally in … However, it is true that the use of retained earnings as a source of funds does not lead to the payment of cash. Explain the merits and demerits of retained earnings. Total public deposits cannot […] 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. 4. Debt and Equity. The merits and drawbacks of privatization have been subjects of considerable debate among business-people, city leaders, and public employees alike. 2. State the merits and demerits of public deposits and retained earnings as methods of business finance. (b) Loan capital: debentures. Coupon Bearing Instruments. As an internal source, it is more dependable than external sources. Money Markets. State the merits and demerits of public deposits and retained earnings as methods of business finance. A company wishing to invite public deposits makes an advertisement in the newspapers. 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. 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 […] High risk investment. List of Disadvantages of Common Stocks. In this chapter we are going to learn about advantages and disadvantages of debt financing. 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. Now, the income-tax law has been amended in such a way that evasion of tax may not be possible by companies. Risks are always associated with investing, but more of these are linked to common stocks. 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. 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. 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. - The dividend policy of the company is in practice determined by the directors. Companies normally retain 30 per cent to 80 percent of profit after tax for financing growth. 13. ADVERTISEMENTS: After reading this essay you will learn about:- 1. It does not depend on the investors’ preference and market conditions. Loans … Ans. 3. Describe three merits and three limitations of debentures as a source of long-term finance for a company. 6. 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 » Q.4:- State the merits and demerits of public deposits and retained earnings as methods of business finance. Merits 6. Public deposits are raised by organisations directly from the public and which helps them to finance short and medium term requirements. asked Aug 1, 2018 in Business Studies by Sakil Alam ( 64.0k points) sources of business finance Public deposits: Public deposits refer to the unsecured deposits invited by companies from the public mainly to finance working capital needs. 1. 2. Merits and Demerits of: - Retained Earnings - Equity Capital - Preference Capital - Debenture Capital - Term Loans. Factors Affecting Capital Markets. asked Feb 2 in Business Studies by Ujjawal01 (65.2k points) class-11; 0 votes. Capital Markets. Differentiate between ‘Shares’ and ‘Debentures’ as sources of long-term finance. It obviates the other hassles of raising funds via other sources. Does not involve any explicit cost; in the form of interest, dividend or floatation cost. 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. Merits of Retained earnings. Debentures and Retained Earnings - Merits and Demerits Class XI Bussiness Studies by Ruby Singh - Duration: 4:08. 1. Retained earnings are cheaper than external equity because the floatation costs, brokerage costs, underwriting commission are other issue expenses are eliminated. 5. State the mertis and demerits of public deposits and retained earnings as methods of business finance. A company develops an internal source of finance by having equity finance on board. It does not depend on the investors’ preference and market conditions. Merits of Retained Earnings: It is a permanent source of fund for the company. Funding and Investing. State the merits and demerits of public deposits and retained earnings as methods of business finance. Classification of Capital Structure 3. Determinants 5. State the merits and demerits of public deposits and retained earnings as methods of business finance. 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. Indeed, each element of privatization—from its apparent cost-saving properties to its possible negative impact on minority workers—provokes strong reaction. 4. Write five reasons to support this statement. Capital Markets . asked Feb 19 in Business Studies by Ranjeet02 ( 51.5k points) sources of business finance Demerits of retained earnings: Ploughing-back of profits is possible only when there is stability in earnings. Rates of interest offered on public deposits are usually higher than that offered on bank deposits. 2) Banks may put restrictions and difficult terms and conditions. These deposits provide higher return than bank deposits. In other words, EPS assesses the ability of a company to generate net profits for the common shareholders. Merits of retained earnings: Retained profits reduce the dependence of company on external borrowings. Money Market Instruments. As an internal source, it is more dependable than external sources. Helps in increasing the market price of shares of the company. Demerits of commercial banks – 1) Investigation of company’s affairs before issuing loan. explain the merits and demerits of public deposits and retained earnings as a source of finance - business studies - Demerits. Use of retained profit does not involve any cost to be incurred for raising the funds,. This source has become very popular off late because companies offer higher interest than the interest offered by banks. Retained earnings is an internal source of finance available to the company. 3) It is also economical. 1. Debentures – meaning; kinds of debentures; advantages and disadvantages of debentures. Goyal Bros. Prakashan - Video Lectures 104,714 views 4:08 As such it provides more income to depositors. In other words, it is a sacrifice made by equity shareholders also referred to as internal equity. 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. 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