This essay DEBTS AND EQUITY has a total of 1020 words and 10 pages.
DEBTS AND EQUITY
Debts and Equity are two sources of Financing.
Debt is the obligation incurred by borrowing while Equity is the owner’s share of assets. Debt and Equity are distinguished on the basis of four distinguishing features.
These are following:
2. Claim on income
· Priority to claim
· Certainty of claims
· Amount of claims
3. Claim on Assets
4. Right to voice in Management
Debt and Equity can be distinguished on the basis of maturity because debt comes due i.e. it must be at some specific time decided in agreement. Various types of debts are differentiated on the basis of maturity date e.g. short term loans are matured within a year. Intermediate term loans are matured in 1 to 10 years while long term loans in more than 10 years. The amount paid on maturity date is called maturity amount and is equal to actual amount plus interest on loan.
Principle amount= Rs. 1000
Interest Rate= 8% annually
Maturity= one year
Rs. 1000+80= Rs.1080
So Rs. 1080/- will be retuned to the bank on maturity date.
If firm is unable to repay the debt on maturity date, the creditor can seal the assets of firm or even force the liquidation of the company.
Equity has no date of maturity. Owner invests in the business to get the profit. There is no agreement on that his initial investment will be refunded.
The investment of owner (i.e. equity) can be regained on the liquidation of company or partnership or by selling the share he has got. Still the chances of regaining the original initial investment depend on the fortune of company and his bargaining ability.
CLAIM ON INCOME:
Another feature which differentiates debt from equity is claim on income. There are three aspects of claim on income that distinguish debt from equity are:
o Priority to claim:
When a firm or company earns income the first priority is given to the claims of creditors. After paying the obligations to creditors, if BOD decide to distribute dividend then preferred stockholders have right to collect the dividend. The claims of preferred stockholders (or limited partners in pak.) are preferred over common stockholders or residual owners. In some cases preferred stockholders check the working capital if it is in a good position (i.e. as agreed or decided), then dividend can be distributed among residual owners otherwise not.
o Certainty of Claim:
If the company has promised to pay the interest on the debt, it must pay the interest regardless of the level of earnings. In case of failure it may face legal action from a part of creditor. The interest payments are fixed charge i.e. they have fixed percentage i.e. 2% or 3% etc. in this way preferred shares are like debts. But the difference btw preferred shares and debts is that unlike creditor, preferred stockholders have no legal right to claim on assets.
Payment to the owners is called withdrawal in case of sole proprietorship or partnership and dividend in case of Joint Stock Company. Whether the share is preferred or common the company does not promise to pay any interest so it is the main difference btw debt and equity.
o Amount of Claim:
Debts have always fixed percentage of interest which is to be paid on them e.g. a company borrows loans from a bank. The interest the company will pay on that amount will be fixed at 5% or 6% regardless of the profit earned by the company.
On the other hand the equity has not fixed percentage although the preferred share holders get a fixed amount as dividend yet the common stockholders who are actual owners of co. do not earn fix dividend. Their income varies year to year depending upon the earning power of the co.
CLAIM ON ASSETS:
Banks and other institutions raise loans so that they can earn profit. They never want to liquidate a company. But in certain situations co. is unable to earn profit; it rather incurs continuous loss, so in order to remove its debts directors have to dissolve it. In such cases the assets of co. are liquidated to pay the creditors and owners.
The first priority to claim on assets is of creditors who raise loans to company. There are two types of loans:
o Secured Loans: These loans for which some security is kept e.g. loans on mortgage. The creditors who provide
Going beyond a Pat on the Back Going beyond a Pat on the Back – Motivation Theory at Work in the Food Service Industry America’s love affair with restaurants has never been greater. According to Roy Alonso of the National Restaurant Association, there were over 750,000 locations offering food services of some sort in the United States as of 1997. It is estimated that half of all adults are foodservice patrons on a typical day, and over 43 cents of the consumers food dollar is spent at these establishments. In 1997, sales of
DuPontAn investment analysis DuPontAn investment analysis DuPont makes a variety of high-value products for industry today, including polymers,chemicals, fibers, and petroleum products...products for agriculture, electronics,transportation, apparel, food, aerospace, construction, and health care.DuPont servescustomers in these and other industries every day, offering better thingsfor better livingas the company prepares to begin its third century of scientific,technological,commercial, and social achievement. DuPont is a
Frito-Lay Frito-Lay 1 This paper's intent is to answer the questions found at the end of the case study IT Helps Keep Frito-Lay in the Chips. We plan to identify the key input and output devices used in Frito-Lay's information system. Also, the steps that the IT professionals at Frito-Lay took to create a system that would be easy to use as well as what steps we would take as managers to introduce the employees to the information system that will be discussed. The question of how will Frito-Lay's info
THE ROBBER BARONS OF THE 19TH CENTURY THE ROBBER BARONS OF THE 19TH CENTURY Cornelius Vanderbuilt... ... an ill educated, ungrammatical, coarse, and ruthless, but clear-visioned man. He started his millions in the steamboat industry. As a young boy he went to work for a small steamboat owner, Thomas Gibbons. After learning how to operate a steamboat, he designed one and persuaded Gibbons to build it. Vanderbuilt's slogans of low prices for superior rates attracted many customers. But an unknown to the passengers was that the food a
Michael Dominguez Michael Dominguez In the begging of the twenty-century a war was raged against the world. Every country fought to honor and defend it country. The Triple Entente, Germany, Austria-Hungary, and Italy versus the Allies, Britain, France, and America in an all out world war. Each county gathered its troops and raised their spirits high in the honor to defend one's nation. Germany was the first. They declared war on France. The French not willing to back down were at war. Germany now on hostile grou
The 1930s The Good Times and The Bad Times The 1930’s: The Good Times and The Bad Times The decade of the 1930’s can be characterized in two parts: The Great Depression, and the restoration of the American economy. America had been completely destroyed due to the StockMarket Crash of 1929. It was up to the government and people of the 1930’s to mend America’s wounds. One man stood up to this challenge, Franklin Delano Roosevelt. He promised to fix the American economy, provide jobs, and help the needy. During The Great Depression, th
World IssuesWorld Issues There are many important world issues. Among these issues, we have studied the rapid growth of the world, which was the topic of critical importance. The extraordinary rapid increase of the world population constitutes a serious problem in which no citizen of the world can remain indifferent. The public has become increasingly aware of the dramatic rise in the rate of the world population growth during the three centuries of the modern era. There is a tendency on the part of many to
ChinaChina The history of China is embeded with revolution and tension dating back to the feudal periods and the first unified Chinese empire under Qi Shi Huang Di in 221 B.C. The Confucianism ideology entrenched in the minds of the Chinese people with its conservative base and the need to achieve harmony in society has yet to be reached and most likely, never will. The proletariat is at the heart of the Marxist-Maoist approach to politics and the basic way of life for the Chinese masses consider
MexicoMexico Mexico was the site of some of the earliest and most advanced civilizations in the western hemisphere. The Mayan culture, according to archaeological research, attained its greatest development about the 6th century AD. Another group, the Toltec, established an empire in the Valley of Mexico and developed a great civilization still evidenced by the ruins of magnificent buildings and monuments. The leading tribe, the Aztec, built great cities and developed an intricate social, political, a
A Student's Reading of The Politics of Rich and PoorA Student's Reading of The Politics of Rich and Poor Often times, a political analyst/scientist will write a book on the politics and economics of the time. This writer may also create a work which emanates views contrary to the opinion of the governing body. Rarely, however, does one find an analyst who will clearly undermine his own political party by, in effect, saying, I told you so. Kevin Phillips, editor-publisher of The American Political Report, columnist for the Los Angeles Times, and
The Uniqueness of the American ConstitutionThe Uniqueness of the American Constitution We the People of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America. This document, written more than 200 years ago is still the backbone that allows America to be an example of freedom and righteo
How Vulnerable Are You to Mass Hysteria How Vulnerable Are You to Mass Hysteria? We often think of ourselves as being too logical of level-headed to be turned around by some bizarre social reality. We never bought a hoola hoop. We know Elvis is truly dead. We all are vulnerable to some extent and we all have our Achilles’ heels. If you understand how these phenomena of heard psychology work, you’ll be better prepared to deal with them. And, as an options trader, you must be able to see reality for what it is in order to profitably tr
Unemployment in Europe Its Impact in the Future of Europe Unemployment Unemployment in Europe: Its Impact in the Future of Europe Unemployment is currently one of the biggest challenges facing the European Union. The fight against unemployment is an essential question that the European Union has to encounter in the short term. Today’s unemployment problem represents the most significant worry of the European Union citizen. Unemployment is the greatest disturbance of the European economy. Approximately 18 million of its people are out of work, an average unemployme
The Fed and Interest RatesThe Fed and Interest Rates Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journals Money & Investment section. If the headlines of Mr. Pettits daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To quote, Industrials Edge Up 4.32 Points Amid Caution on Interest Rates, and Industrials
Crime in culturecrime in culture Crime refers to many types of misconduct forbidden by law. Crimes include such things as murder, stealing a car, resisting arrest, possessing or selling illegal drugs, appearing nude on a public street, drunken driving, and bank robbery. The list of acts considered crimes is constantly changing. For example, at one time, people were charged with witchcraft, but this is no longer illegal. Today, it is becoming a serious crime to pollute the air and water. In colonial days, pollut
Hydrogen the fuel of the futureHydrogen the fuel of the future Why are we as Americans so afraid to change? even if it is a change for the better? the world has been using oil coal and other petroleum products to power just about everything that moves for the last 150 years. yet most cars in the united states only get 10-20 miles a gallon and even the good ones can get only a petty 20-50 miles a gallon. so why do we put up with the inefficiency when there are far better alternatives out there? Such as hydrogen, which was di
COCA COLA COCA COLA The Coca-Cola company started out as an insignificant one man business and over the last one hundred and ten years it has grown into one of the largest companies in the world. The first operator of the company was Dr. John Pemberton and the current operator is Roberto Goizueta. Without societies help, Coca-Cola could not have become over a 50 billion dollar business. Coca-Cola was invented by Dr. John Pemberton, an Atlanta pharmacist. He concocted the formula in a three legged brass k
Analysis of Roosevelt's New DealAnalysis of Roosevelt's New Deal During the 1930's, America witnessed a breakdown of the Democratic and free enterprise system as the US fell into the worst depression in history. The economic depression that beset the United States and other countries was unique in its severity and its consequences. At the depth of the depression, in 1933, one American worker in every four was out of a job. The great industrial slump continued throughout the 1930's, shaking the foundations of Western capitali
A Portrait of Duke Ellington A Portrait of Duke Ellington By Tracy Frech Duke Ellington is considered to be one of the greatest figures in the history of American music. Edward Kennedy Duke Ellington was born in Washington D.C. on April 29, 1899. His parents were James Edward and Daisy Kennedy Ellington. They raised Duke as an only child, until his sister, Ruth, was born when Duke was sixteen years old. Duke, even as a teenager, had a great talent for music. In the beginning of his musical life, Duke began to take a prom
William H Gates III and His Giant William H. Gates III and His Giant Bill Gates, cofounder of the Microsoft corporation, holds 30.7 percent of its stock making him one of the richest people in the United States. He was the marketing and sales strategist behind many of Microsoft's software deals. Their software became the industry standard in the early 1980s and has just increased in distribution as the company has grown, so much that the Federal government is suggesting that Microsoft has violated Sherman and Clayton antitrust
We read books for a number of reasons but usually because we want We read books for a number of reasons but usually because we want to or we have to. When you pick up a book it falls into one of three types, dependent on whether it is a want to or a have to type of book. First there's the kind of book you pick up and like the look of but then the first chapter is so bad that you have to put it down because you are either too confused by the plot or you discover it has been written in some obscure untranslatable language. The second type is where the first cha
Richard Warren Sears and Sears Roebuck Company Richard Warren Sears and Sears, Roebuck, & Company Richard Warren Sears was born on December 7, 1863, in Stewartville, Minnesota. He was the son of James Warren and Eliza A. Sears, both of English ancestory. His father led anything but a happy life. He had failed in his quest for gold during the California Gold Rush of 1849 and was a bitter soldier in the Civil War, which he blamed on politicians. He had earned a sizable sum of money working as a blacksmith and a wagonmaker, but he lost it all
When Alan Greenspan presented the Federal Reserve's semi-annual report When Alan Greenspan presented the Federal Reserve's semi-annual report on monetary policy to the Subcommittee on Domestic and International Monetary Policy, the Committee on Banking and Financial Services, and the U.S. House of Representatives on February, Dr. Greenspan touted a cautionary yet favorable view of the U.S. economy. He states that With inflationary pressures apparently receding, the previous degree of restraint in monetary policy was no longer deemed necessary, and the FOMC conseq
401k Plans 401(k) Plans There are many economic issues facing the nation today. While some are extremely important in determining how the economy is balanced, others are not. Although this is true, that does not necessarily make these lesser important issues obsolete. Take, for example, the recent issue of corporate leaders matching contributors to the 401(k) plan with company stock, instead of with cash. Though this is a relatively National issue, it still greatly affects a large number of people in fore
Were In The Money We¹re In The Money A frequently asked question by a customer is ³Can you break a hundred dollar bill?² If this request has been granted, why do the cashiers take the bill and turn it into a biology experiment? Between pouring a liquid on the note and/or holding it up to the light to check for authenticity, is our currency system in danger? As of the beginning of 1996, the Chairman of the Federal Reserve and the Secretary of the United States Treasury, prove their economic wizardry by making the
A Role of Ethics and Social Responsibilities in Management A Role of Ethics and Social Responsibilities in Management. Ethics can be defined as a process of evaluating actions according to moral principal of values(A.Alhemoud). Throughout the centuries people were trying to choose between profit and moral. Perhaps, some of them obtain both, but every time it could have roused ethical issues. Those issues concern fairness, justice, rightness or wrongness; as a result it can only be resolved according to ethical standards. Setting the ethical standards f
Adam Smith Adam Smith Adam Smith, a brilliant eighteenth-century Scottish political economist, had the advantage of judging the significance ol colonies by a rigorous examination based on the colonial experience of 300 years. His overview has a built-in bias: he strongly disapproved of excessive regulation of colonial trade by parent countries. But his analysis is rich with insight and remarkably dispassionate in its argument. Adam Smith recognized that the discovery of the New World not only brought weal
Bombardier Report Bombardier Report Analysis of Bombardier: Bombardier took on its present form in 1976 when MLW-Worthington, a manufacturer of locomotives, acquired Bombardier Ltd., a manufacturer of snow tractors and snowmobiles. The company was renamed Bombardier Inc. in 1978. The company has been active ever since in the acquisitions of various aerospace and transportation companies around the world. Nature of the Business Bombardier conducts business in five main areas: transportation equipment, aerospace,
The Economy of Japan had experience a tremendous growth since the end The Economy of Japan had experience a tremendous growth since the end of the Korean war. The growth of GNP in 1967 and 1968 was above 10 % (double digit growth period) which exceed countries such as Britain, France and Germany. The economy experienced a boost is due to many reasons, such as: enlargement of industrial facilities, massive adaptation of western technology and education, lower the military expense to 1% of GNP, relation with power nation, human resources and their spirit to achieve
Davin Bloom Davin Bloom English 152 Reuff, Instructor Paper 2 2/25/97 A career in the securities industry can offer exciting work if you enjoy working in a competitive and demanding atmosphere. Investment bankers, stock brokers, and stock traders all make up the securities industry providing services to each other, as well as the general public. All of people involved in this field deal with stocks, bonds, and other financial material in some way or another, but they all have their own specific objectives
Table of Contents Table of Contents Introduction 3 Description 3 Segments 3 Caveats 4 Socio-Economic 4 Relevant Governmental or Environmental Factors, etc. 4 Economic Indicators Relevant for this Industry 4 Threat of New Entrants 5 Economies of Scale 5 Capital Requirements 6 Proprietary Product Differences 7 Absolute Cost Advantage 8 Learning Curve 8 Access to Inputs 8 Proprietary Low Cost Production 8 Brand Identity 9 Access to Distribution 9 Expected Retaliation 9 Conclusion 10 Suppliers 10 Supplier concentrat
Chinese Economic Reform under Communist Rule Chinese Economic Reform under Communist Rule Two years after the death of Mao Zedong in 1976, it became apparent to many of China’s leaders that economic reform was necessary. During his tenure as China’s premier, Mao had encouraged social movements such as the Great Leap Forward and the Cultural Revolution which had had as their bases ideologies such as serving the people and maintaining the class struggle. By 1978 Chinese leaders were searching for a solution to serious economic proble
Economic Essay Economic Essay My topic is the increase if the taxes which Clinton Administration is planning. This increase in taxes will target “multinational Corporations, end the favored tax treatment of extra long term bonds”, It will also raise capital gains taxes by “changing the rules for computing the cost basis of securities when they are sold at a profit”. What this will do is increase the taxes for the rich and will decrease the difference between the rich and the poor. The plan is intent on cuttin
Colgate Palmolive Colgate Palmolive With a continuous expansion in it's product line, Colgate-Palmolive is taking on the look of one of the most stable stocks on the exchange. Colgate has a wide variety of products sold around the globe including, Colgate Toothpastes, Speed Stick Deodorants, Ajax Surface Cleaner, and Hill's Science Diet foods for house pets. Colgate was founded in 1806 in New York City on Dutch Street by William Colgate as a starch, soap and candle business. Colgate produced soaps and perfumes o
The ATT Corporation formerly known as The American Telephone and Teleg The AT+T Corporation, formerly known as The American Telephone and Telegraph Company, was incorporated on March 3, 1885 in New York as a wholly owned subsidiary of The American Bell Telephone Company. Its original purpose was to manage and expand the burgeoning toll (long distance) business of American Bell and its licensees. It continued as the long distance company until December 30, 1899 when it assumed the business and property of American Bell and became the parent company of the Bell Syst
The Essence of The Essence of Empowerment Empowerment is certainly not a new idea within the business arena. In fact, its concept has been around since the 1960's when American car manufactures suddenly realized that they were losing their butts to the Japanese producers. An extensive and extremely well-funded investigation for answers to the recurrent question, how do I get more out of my employees while simultaneously lowering my costs, did produce some implementable and constructive results. The topic I ha
To my amazement the Great Depression serves as a natural debating poin To my amazement the Great Depression serves as a natural debating point that justifies or refutes various economic policies. The Great Depression and the New Deal are complex topics that are open to many interpretations. The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. Seeing the order in which events actually occurred dispels many myths about the Great Depression. One of the greatest of these myths is
The Loewen Group Inc was founded in 1969 The company has two major hea The Loewen Group Inc. was founded in 1969. The company has two major headquarters in North America, one in Burnaby, British Colombia and a second in Cincinnati, Ohio. Loewen Group Inc. (L.G.I.) is the largest funeral services enterprise in Canada and is the second largest company in the North American Funeral Services Industry. L.G.I. owns 918 funeral homes and 269 cemeteries and also engages in the pre-need selling of funeral services including cemetery and cremation services. The company stri
The soaring volume of international finance and increased interdepende The soaring volume of international finance and increased interdependence in recent decades has increased concerns about volatility and threats of a financial crisis. This has led many to investigate and analyze the origins, transmission, effects and policies aimed to impede financial instability. This paper argues that financial liberalization and speculation are the most reflective explanations for instability in financial markets and that financial instability is likely to be transmitted glo
General Motors - Financial Ratio Analysis General Motors - Financial Ratio Analysis I. General Motors History Highlights In its early years the automobile industry consisted of hundreds of firms, each producing a few models. William Durant, who bought and reorganized a failing Buick Motors in 1904, determined that if several automobile makers would unite, it would increase the protection for the group. He formed the General Motors Company in Flint, Michigan, in 1908. Durant had bought 17 companies (including Oldsmobile, Cadillac, and P
Japan has performed a miracle The country's economic performance follo Japan has performed a miracle. The country's economic performance following its crushing defeat in World War II is nothing short of astounding. The economic expansion of Japan is second to none. All of the elements are in place for Japan to continue increasing its share of the world's wealth as America's gradually declines. The country is on track to becoming the world's largest economy. How did Japan do it? There are many theories and studies that have traced the Japanese miracle without succe
The investment industry is composed of a wide variety of firms The mai The investment industry is composed of a wide variety of firms. The main players include independent full line brokerage firms, investment bank subsidiaries of chartered banks, and discount brokers. Independent full line brokerage firms offer a wide range of services, including underwriting, trading of stocks, advice and research. In essence, the full service brokerage subsidiaries of chartered banks offer the same services, however, banks' brokerage firms may have a larger pre-established clie
Results of operations Intel broke a record in net revenues in 1995 for Results of operations. Intel broke a record in net revenues in 1995, for the ninth consecutive year, rising by 41% from 1994 to 1995 and by 31% from 1993 to 1994. Higher volumes of the rapidly raising Pentium microprocessor family, partially offset by lower prices, and increased sales of related board-level products were responsible for most of the growth in revenues in 1994 and 1995. Revenues from the Intel486 microprocessor family declined substantially in 1995 due to a shift in market demand
Business plays a major role within our society It is a creative and co Business plays a major role within our society. It is a creative and competitive activity that continuously contributes to the shaping of our society. By satisfying the needs and wants people cannot satisfy themselves, businesses improve the quality of life for people and create a higher standard of living. It is a way for individuals to provide goods and services to consumers, and at the same time, produce a profit for themselves. Businesses are not only important because they provide goods an
BECOA Report on BECOA Report on Investing Currencies in the Far East Prepared by: Brad Saunders Introduction In the world today, the possibilities are endless for people who want to make money. These opportunities may exist in the form of a bond, currency, stock, or business venture, but the common tie between them is that it is possible to make money if you research the market and impose the proper strategic plans. In this report, the issue of investing money in the currency markets of the Far East will be my
Investing In Canada Investing In Canada - Factors that are attractive for direct investment in Canada. Canada is the second largest country in the world, occupying close to 10 million square kilometres of land bounded by the Atlantic, Pacific and Arctic oceans. Canada shares a 6,000 kilometre border and the five largest freshwater lakes in the world with the United States. Known as the Great Lakes, they provide a route to the Atlantic via the St.- Lawrence Seaway, permitting direct access to international markets.
Over the past twenty or so years great wealth and improved economic an Over the past twenty or so years, great wealth and improved economic and social conditions have been promised to the communities that have embraced legalized gambling. However, with twenty years of experience it is time to look back and analyze whether this is true or not. It could easily be said that gambling is as American as apple pie. Gambling has shaped American history since its beginning. Lotteries were used by The First Continental Congress to help finance the Revolutionary war. Many of
MACROECONOMIC OVERVIEW MACROECONOMIC OVERVIEW BY Steven Ricciardi Mr. Esposito Economics February 12, 1997 Monetary/Fiscal Policy Government monetary and fiscal policies change all the time. These policies are installed or fixed for the betterment of trade, inflation, unemployment, the budget, or many other economic factors. In my opinion, it seems like two people have the majority of the control when it comes to forming these policies. The first person who influences these policies is President Bill Clinton who prop
Netscape Analysis Report Netscape Analysis Report Accounting 2 Honors I. History Netscape Communications Corporation, originally named Mosaic Communications Corporation (MCOM) was founded in April 1994 by Jim Clark and Marc Andreessen. They released their first browser products free to Internet users in September 1994. Jim Clark is chairman of Netscape Communications Corporation. Before founding the company, Clark was the chairman of Silicon Graphics, a computer hardware manufacturer he founded in 1982. Marc Andreessen
Swen Neumann Introduction to Modern Business Swen Neumann Introduction to Modern Business L.Thomas and R.Cawley 15/11/96 PENGUIN BOOKS LIMITED The aim of this essay is to comment on how, over the last six years Penguin Books Limited has grown and managed external and internal changes. Sixty one years ago, Allen Lane, the managing director of the Bodley Head, a British publishing company, revolutionised reading with the introduction of the first ten Penguin paperbacks. Today, over 600 million paperbacks are sold yearly. At a time when ther