Definition: The Memorandum of Understanding or MoU is the performance agreement between two or more parties wherein they agree on the common lines of action. Generally, the parties opt for a memorandum of understanding when they don’t want the agreement to be legally enforceable and just want written proof of their oral commitments to each other. However, whether the … [Read more...] about Memorandum of Understanding (MoU)
Sources of Long Term Finance
Definition: The Sources of Long Term Finance are those sources from where the funds are raised for a longer period of time, usually more than a year. Long term financing is required for modernization, expansion, diversification and development of business operations. Generally, the companies resort to the sources of long-term finance when they have an inadequate cash balance … [Read more...] about Sources of Long Term Finance
Debentures
Definition: Debentures are the debt instruments used to raise additional capital from the general public, usually backed by the integrity and the creditworthiness of the issuer. Debentures usually offer more flexibility than a term loan as there is more variety with respect to the maturity, security, interest rate, repayment and special features. Debentures are the … [Read more...] about Debentures
Term Loan
Definition: The Term Loan is the primary source of long-term debt raised by the companies to finance the acquisition of fixed assets and working capital margin. It is also called as a term finance which means the money raised through the term loans is generally repayable in regular payments i.e. fixed number of installments over a period of time. Advantages of Term Loan … [Read more...] about Term Loan
Preference Capital
Definition: The Preference Capital is that portion of capital which is raised through the issue of the preference shares. This is the hybrid form of financing that has certain characteristics of equity and certain attributes of debentures. Advantages of Preference Capital There is no legal obligation on the firm to pay a dividend to the preference shareholders. The … [Read more...] about Preference Capital
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. In a balance sheet, you often come … [Read more...] about Retained Earnings
Equity Capital
Definition: The Equity Capital refers to that portion of the organization’s capital, which is raised in exchange for the share of ownership in the company. These shares are called the equity shares. The equity shareholders are the owners of the company who have significant control over its management. They enjoy the rewards and bear the risk of ownership. However, their … [Read more...] about Equity Capital
Cash Budget
Definition: The Cash Budget is a budget prepared to estimate the cash inflows and outflows during a specific period of time. In other words, cash budget shows the cash inflows and cash outflows expected to occur in the immediate future period. The purpose of preparing the cash budget is to determine that whether the enterprise has sufficient cash balance to meet out its … [Read more...] about Cash Budget
Hire-Purchase
Definition: The Hire-Purchase is a kind of a lease agreement wherein the hiree, the counterpart of lessor purchases the asset and gives it on hire to the hirer, the counterpart of the lessee in exchange for the fixed number of periodical installments inclusive of the interest amount and the principal amount. In the case of a Hire-purchase agreement, the hirer is supposed to … [Read more...] about Hire-Purchase
Domestic Lease and International Lease
Definition: The Domestic Lease and International Lease are the types of leases classified on the basis of the places where the parties to the lease agreement reside. The lease is the agreement between the lessor and the lessee; wherein the lessor grants permission to the lessee to use his property in return for periodical rental payments. Domestic Lease: When all the … [Read more...] about Domestic Lease and International Lease