Secured and Unsecured Debenture

Secured and Unsecured Debenture

The debenture is an instrument issued by company to obtain long term finance normally for more than ten years. The instrument is issued under company common seal and term of debenture are mentioned at the debenture instrument. The debenture can be classified into two types

1. Secured Debenture
2. Unsecured Debenture

Right Share and Bonus Share

Right Share and Bonus Share

Right share is number of shares issued to the existing share holder at a discounted price and this is method to increase the share capital of the entity and with this right issue the market price of the share are expected to come down to nullify the effect of right issue.


Bonus Share is a replacement of cash dividend . in bonus share no new resources inducted in the operations but the investor are compensated in form of share instead of cash dividend.

Nominal Value and Par Value

Nominal Value and Par Value

The nominal value and par value has the same meanings and these terms can be used alternatively and there is one another term which has the same meaning that is face value. These three terminology is basically used for shares and other financial instrument issued by the company.


The nominal value is the price written on the financial instruments. Normally this is the value at which the instrument issued and it is appearing on the financial instrument. Financial instrument i.e shares or bond may be traded in the market at a market price that is called market value of the share or bond.

Director and Shareholders

 Director and Shareholder

1. Share Holder

Shareholder is an investor in the company . His objective is the maximization by earn dividend and capital appreciation of his share value. The shareholder  may have little skills to manage the business and this may be one of the reason to invest in public companies where more skilled people know as director are available to perform management tasks on behalf of shareholders.

2. Director

Director is managed the business and appointed by the shareholder for a particular periods. The director may be share holder . In some companies major shareholder are director . The director form company and people follow them. In other case company hired director of repute at high remuneration.

Difference between Profit and Dividend

Difference between Profit and Dividend

1.Profit

 Profit is earned by the company during the year and dividend is distribution a percentage of such profit. It is important to remember that company may have profitable operation but he still not paying dividend .

2. Dividend

The dividend payment is a total management decision. in simple words dividend payment is not an obligatory requirement and management may decided to reinvest the profit instead of paying out.
Dividend payment is normally described as percentage of nominal value.

Example of Dividend

Company A has decided to pay 25% dividend . The nominal price of share of A is 100 USD and market value of share is 550 USD.

It means that company has decided to pay 25 USD for per share of investment ( i.e 100 per share)

Reason for Share Price Fluctuation

Reasons for Share Price Fluctuation

The following are important reason for Share price Fluctuation

1. Inflation in the Economy
2. Market expectation about results
3. Political Crises
4. Monetary Policy
5. Major Acquisition or Merger

1.Inflation in the economy :- 

If there is high inflation in the economy . The market expect that Govt is going to control the money supply by enhancing the interest rate on Govt bond . Due to high interest rate the Investment will be transferred to the Govt bond , Therefore , it is expected that in high inflation the share price will come down.

2.Market Expectation about Results 

The market expectation about the performance and results of the organization also play vital role in price fluctuation. A positive expectation will raise the prices of share while a negative expectation will bring the price down.

3.Political Crises 

The political crises will effect the share price adversely . it is almost definite that in civil war or other political crises will bring the stock down.

4.Monetary Policy 

if the Govt introduce the monetary policy to control the money circulation in the economy. Then this situation will lead to lower the price of share while in case of more money supply the price are expected to flourish.

5.Acquisition and Merger :- 

The acquisition and merger will also impact the prices of company. The prices will depends on market expectation about the future performance in case of merger and acquisition.

Reasons for Holding Stock

Reasons for Holding Stock

The holding of stock will result in increase in holding cost , however, an appropriate level of stock is required to be hold by the organization for following reasons.

1.Continuous Production :- 

Sufficient inventory must be available to ensure the continuous production.

2.High Purchase High Discount :- 

Normally a high stock purchase may earn high discount for the organization. The organization must calculate the difference between discount offered and holding cost of inventory.

3.Avoid future Shortages :- 

Sometime future shortage are expected which will result in increase in price of material in future.

4.Seasonal Purchase :- 

Some material has seasonal purchase for example sugar and cotton industry.
Transportation Cost:- The transportation cost reduction is also a primary reason for high stock holding.

5. Take Advantage of Low Price

sometime raw material is available in the market due to market forces or any other reason. Therefore entity would like to take advantage of low price of raw material.