a company require funds to merit it's working capital state the source available and define it.
Answers
Explanation:
The merits and demerits of public deposits and retained earnings as methods of business finance are :
MERITS OF PUBLIC DEPOSITS :
(1) Generally the rate of interest on public deposit is higher than the rate of bank interest . As such it provides more income to depositors.
(2) Public deposits these days are safe because the company in an attempt to build its reputation fulfills its obligations. Deposits are generally made with the regional industries which result in their growth and development.
(3) Public deposit is the simple method where the public deposits at their own will. It requires the least paperwork, printing and correspondence.
DEMERITS OF PUBLIC DEPOSITS :
(1) The public deposit as source of financing is not dependable. Depositors are given option to withdraw money at any time by giving short term notice.
(2) The management of the company may indulge in speculation and over trading with the surplus funds easily generated through public deposits.
(3) The public deposit are not secured as no assets are mortgaged against it.
(4) voting rights are not guaranteed to depositors so they can participate in the management.
MERITS OF RETAINED EARNINGS :
(1) Retained earnings are the profit earned by the company itself. Retained earnings makes the financial position of the company very sound.
(2) The undisturbed profit available to the company is interest free. The company is not required to pay interest on it.
(3) Retained earnings are secretly utilised by the company.
(4) Retained earnings makes a company financially sound so there is no danger of the shareholders funds been lost.
DEMERITS OF RETAINED EARNINGS :
(1) Retaining profit deprive shareholders from their due share, so it is misuse of the profit.
(2) There is always danger of over capitalisation, if the company goes on retaining profit every year.
(3) The management can misuse the funds available as undistributed profit.
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