Sources of Finance Assignment Example | Topics and Well Written Essays - 1250 words

Sources of Finance - Assignment Example The author of the paper states that ordinary shares are issued to the owners of a company. They have a nominal or 'face' value, typically of $1 or 50 cents. The market value of a quoted company's shares bears no relationship to their nominal value, except that when ordinary shares are issued for cash, the issue price must be equal to or be more than the nominal value of the shares.  "Deferred ordinary shares are a form of ordinary shares, which are entitled to a dividend only after a certain date or if profits rise above a certain amount. Voting rights might also differ from those attached to other ordinary shares.  "Preference shares have a fixed percentage dividend before any dividend is paid to the ordinary shareholders. As with ordinary shares, a preference dividend can only be paid if sufficient distributable profits are available, although with 'cumulative' preference shares the right to an unpaid dividend is carried forward to later years. The arrears of dividend on cumula tive preference shares must be paid before any dividend is paid to the ordinary shareholders.  "Loan stock has a nominal value, which is the debt owed by the company, and interest is paid at a stated "coupon yield" on this amount. For example, if a company issues 10% loan stocky the coupon yield will be 10% of the nominal value of the stock, so that $100 of stock will receive $10 interest each year. The rate quoted is the gross rate, before tax.  "Debentures are a form of loan stock, legally defined as the written acknowledgment of a debt incurred by a company, normally containing provisions about the payment of interest and the eventual repayment of capital. "Loan stock and debentures will often be secured. Security may take the form of either a fixed charge or a floating charge. "For any company, the amount of earnings retained within the business has a direct impact on the number of dividends. Profit re-invested as retained earnings are profit that could have been paid as a d ividend.