Advanced Financial Management VI SEM BCOM

UNIT: DIVIDEND DECISION

Meaning of Dividend
Dividend refers to the part of profits of the company which
is distributed by the company among its shareholders.
OR
It’s the reward of the shareholders for investments made by
them in the shares of the company.

Meaning of Dividend Policy

Dividend policy is a policy which is maintained by the
business concern for the payment of dividend to its shareholders.
Forms of Dividends
 Cash Dividend.
 Scrip or Bond Dividend.
 Property Dividend.
 Stock Dividend.
Cash dividend:
A cash dividend is a usual method paying dividends. Payment of
dividends in cash results in outflow of funds and reduces the company’s
net worth, though the shareholders get an opportunity to invest the cash
in any manner they desire. This is why the ordinary shareholders prefer
to receive dividends in cash. But the firm must have adequate liquid
resources at its disposal or provide for such resources so that its liquidity
position is not adversely affected on account of cash dividends.
Scrip or Bond Dividend:
A Scrip dividend promises to pay the shareholders at a future specific
date. In case a company does not have sufficient funds to pay dividends
UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 1
 Advanced Financial Management VI SEM BCOM

in cash, it may issue notes or bonds for amounts due to the shareholders.
The objective of scrip dividend is to postpone the immediate payment of
cash. A Scrip dividend bears interest and is accepted as a collateral
security.
Property Dividend: Property dividends are paid in the form of some
assets other than cash. They are distributed under exceptional
circumstances and are not popular in India.
Stock dividend:
Stock dividend means an issue of bonus shares to the existing
shareholders. If a company does not have liquid resources it is better to
declare stock dividends. Stock dividends amounts to capitalization of
earnings and distribution of profits among the existing shareholders
without affecting the cash position of the firm.
Types of Dividend Policy
 Regular dividend policy
 Stable dividend policy
 Irregular dividend policy
 No dividend policy
Regular dividend policy:
Payment of dividend at the usual rate is termed as regular dividend.
The investors such as retired persons, widows and other economically
weaker persons prefer to get regular dividends.
MERITS:
 It establishes a profitable record of the company.
 It creates confidence amongst the shareholders.
 It aids in long term financing and renders financing easier.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 2

 Advanced Financial Management VI SEM BCOM

 It stabilizes the market value of shares.

 The ordinary shareholders view dividends as a source of funds to
meet their day to day living expenses.
Stable dividend policy:
The term stability of dividend of dividends means consistency or
lack of variability in the stream of dividend payments. In more precise
terms, it means payment of certain minimum amount of dividend
regularly.
A stable dividend policy may be established in any of the following 3
forms:
(a)Constant dividend per share.
Some companies follow a policy of paying fixed dividend per
share irrespective of the level of earnings year after year. Such firms
usually create a Reserve for Dividend Equalization to enable them pays
the fixed dividend even in the year when the earnings are not sufficient
or when there are losses. A policy of constant dividend per share is most
suitable to concerns whose earnings are expected to remain stable over a
number of years.
(b)Constant payout ratio:
Constant payout ratio means payment of a fixed percentage of net
earnings as dividends every year. The amount of dividend in such a
policy fluctuates in direct proportion to the earnings of the company.
The policy of constant payout is preferred by the firms because it is
related to their ability to pay dividend.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 3

 Advanced Financial Management VI SEM BCOM

(c)Stable rupee dividend plus extra dividend:

Some companies follow a policy of paying constant low dividend
per share plus an extra dividend in the years of high profits. Such policy
is most suitable to the firm having fluctuating earnings from year to
year.
MERITS:
 It is sign of continued normal operations of the company.
 It stabilizes the market value of shares.
 It creates confidence among the investors.
 It improves the credit standing and makes financing easier.
 It meets the requirements of institutional investors who prefer
companies with stable dividends.
DEMERITS:
 Once a stable dividend policy is followed by a company, it is not
easy to change it.
 The stable dividends are not paid to the shareholders on any
account including insufficient profits; the financial standing of the
company in the minds of the investors is damaged.
 It adversely affects the market price of shares of the company.
 If the company pays stable dividends in spite of its incapacity, it
will be suicidal in the long run.
Irregular dividend policy:
Some companies may follow the irregular dividend payments on
account of the following:
i. Uncertainty of earnings.
ii. Unsuccessful business operation.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 4

 Advanced Financial Management VI SEM BCOM

iii. Lack of liquid resources.

No dividend policy:
A company may follow a policy of paying no dividends presently
because of its unfavorable working capital position or on account of
requirements of funds for future expansion and growth.
Determinants of Dividend Policy:
1. Legal Restrictions
2. Desire and Type of shareholders
3. Nature of Industry
4. Age of company
5. Future Financial Requirements
6. Government Economic Policy
7. Taxation Policy
8. Requirements of Institutional Investors
9. Stability of dividends
10. Liquid Resources

11. Magnitude and Trend of Earnings

12. Inflation

13. Control objective

(1) Legal provisions relating to dividends as laid down in

Companies Act of 1956. These provisions require that dividend
can be paid only out of current profits or past profits after
providing for depreciation or out of the moneys provided by
Government for the payment of dividends in pursuance of a
guarantee given by the Government.
UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 5
 Advanced Financial Management VI SEM BCOM

(2) The Directors should give the importance to the desires of

shareholders in the declaration of dividends as they are the
representatives of shareholders. Desires of shareholders depend
upon their economic status. Investors, such as retired persons,
widows and other economically weaker persons view dividends as
a source of funds to meet their day to day living expenses. To
benefit such investors, the companies should pay regular
dividends.
(3) Nature of industry to which the company is engaged also
considerably affects the dividend policy. Certain industries have a
comparatively steady and stable demand irrespective of the
prevailing economic conditions.
EX: people used to drink liquor both in boom as well as in
recession. Such firms expect regular earnings and hence can follow
a consistent dividend policy. On the other hand, if the earnings are
uncertain, as in the case of luxury goods, conservative policy
should be followed.
(4) The age of company also influences the dividend decision of
a company. A newly established concern has to limit payment of
dividend and retain substantial part of earnings for financing its
future growth and development, while older companies which have
established sufficient reserves can afford to pay liberal dividends.
(5) It is not only the desires of the shareholders but also future
financial requirements of the company that have to be taken into
consideration while making a dividend decision. If a company has
highly profitable investment opportunities it can convince the
shareholders of the need for limitation of dividend to increase the
future earnings and stabilizes its financial position its financial
position. But when profitable investment opportunities, do not
exist then the company may not be justified in retaining substantial

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 6

 Advanced Financial Management VI SEM BCOM

part of its current earnings. Thus, a concern having few internal

investment opportunities should follow high payout ratio as
compared to one having more profitable investment opportunities.
(6) The dividend policy of a firm has also to be adjusted to the
economic policy of the Government as was the case when the
Temporary Restriction on Payment of Dividends Ordinance was in
force. In 1974 and 1975, companies allowed to pay dividends not
more than 33 percent of their profits or 12 percent on the paid up
value of the shares, whichever was lower.
(7) The taxation policy of the Government also affects the
dividends decision of a firm. A high or low rate of business
taxation affects the net earnings of company and thereby its
dividend policy. Similarly a firm dividend policy may be dictated
by the income tax status of its shareholders. If the dividend income
of shareholders is heavily taxed being in high income bracket, the
shareholders may forego cash dividend and prefer bonus shares
and capital gains.
(8) Dividend policy of company can be affected by the
requirements of institutional investors such as financial
institutions, banks insurance corporations, etc. These investors
usual favour a policy of regular payment of cash dividends and
stipulate their own terms with regard to payment of dividend on
equity shares.
(9) Stability of dividends is another important guiding principle
in the formulation of a dividend policy. Stability of dividend
simply refers to the payment of dividend regularly and
shareholders, generally, prefer payment of such regular dividends.
A policy of constant dividend per share is most suitable to
concerns whose earnings are expected to remain stable over a

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 7

 Advanced Financial Management VI SEM BCOM

number of years or those who have built up sufficient reserves to

pay dividends in the year of low profits.
(10) The dividend policy of a firm is also influenced by the
availability of liquid resources. Although a firm may have
sufficient available profits to declare dividends, yet it may not be
desirable to pay dividends if it does not have sufficient liquid
resources. Hence the liquidity position of a company is an
important consideration in paying dividends.
(11) The amount and trend of earnings is an important aspect of
dividend policy. As dividends can be paid only out of present or
past years profits, earnings of a company fix the upper limits on
dividends. The dividends should generally be paid out of current
year’s earnings only as the retained earnings of the previous year’s
become more or less a part of permanent investment in the
business to earn current profits. The past trend of the company
earnings should also be kept in consideration while making the
dividend decision.
(12) As in case of a high dividend payout ratio the retained
earnings are insignificant and the company will have to issue new
shares to raise funds to finance its future by the company. Thus,
under these circumstances to maintain control of the existing
shareholders, it may be desirable to declare lower dividends and
retain earnings to finance the firm’s future requirements.
(13) When a company pays high dividends out of its earnings, it
may result in the dilution of both control and earnings for the
existing shareholders. Similarly issue of new shares shall cause
increase in the number of equity shares and ultimately cause a
lower earnings per share and their price in the market. Thus in such
circumstances to maintain control of the existing shareholders, it
may be desirable to declare lower dividends.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 8

 Advanced Financial Management VI SEM BCOM

BONUS(stock dividend) SHARES:

Stock dividend means the issue if bonus shares to the existing
shareholders instead of paying dividend in cash without affecting cash
position of the company.
MERITS:

 It makes available capital to carry an a large and more profitable

business.
 It is felt that financing helps the company to get rid of market
influences.
 The balance sheet of the company will reveal a more realistic
picture of the capital structure and the capacity of the company.
 It enables the company to make use of its profits on a permanent
basis and increases creditworthiness of the company.
 It is the cheapest method of raising additional capital for the
expansion of the business.
 When a company pays bonus to its shareholders in the value of
shares and not in cash, its liquid resources are maintained and the
working capital of the company is not affected.

DEMERITS:

 The fall in the future rate of dividend results in the fall of the
market price of shares considerably, this may cause unhappiness
among the shareholders.
 The reserves of the company after the bonus issue decline and
Leaves lesser security to investors.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 9

 Advanced Financial Management VI SEM BCOM

Sources of Bonus Issue:

 Balance in the profits and loss account.

 General Reserves.
 Capital Reserves.
 Capital Redemption Reserve A/C.
 Premium received in cash.
RIGHTS ISSUE:
Rights issue is an invitation to the existing shareholders to subscribe
for further shares to be issued by a company.
MERITS:

 The expenses to be incurred, otherwise if shares are offered to the

public are avoided.
 There is no certainty of the shares being sold to the existing
shareholders.
 It betters the image of the company and stimulates enthusiastic
response from shareholders and the investment market.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 10

 Advanced Financial Management VI SEM BCOM

UNIT:
WORKING CAPITAL MANAGEMENT
Meaning of working capital:
It refers to the funds invested in current assets, i.e. investment in
sundry debtors, cash and other current assets.

 Gross working capital:

It is the capital which is invested in total current assets of the
enterprises.

 Net working capital:

It is the excess of current assets over current liabilities.
NWC = CA – CL
CA= Current Assets.
CL=Current Liabilities.
Importance of working capital:
1. Solvency of the business:
Adequate working capital helps in maintaining solvency of the
business by providing uninterrupted flow of production.
2. Goodwill:
Sufficient working capital enables a business concern to make
prompt payments and hence helps in creating and maintaining goodwill.
3. Easy loans:

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 11

 Advanced Financial Management VI SEM BCOM

A concern having adequate working capital, high solvency and

good credit standing can arrange loans from banks and others on easy
and favorable terms.
4. Cash discounts:
Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence it reduces costs.
5. Regular supply of raw materials:
Sufficient working capital ensures regular supply of raw materials
and continuous production.
6. Regular payment of salaries, wages and other day to day
commitments:
A company which has ample working capital can make regular
payment of salaries, wages and other day to day commitments which
raises the morale of its employees, increases their efficiency, reduces
wastages and costs and enhances production and profits.
7. Exploitation of favorable market conditions:
Only concerns with adequate working capital can exploit favorable
market conditions such as purchasing its requirements in bulk when the
prices are lower and by holding its inventories for higher prices.
8. Ability to face crisis:
Adequate working capital enables a concern to face business
crisis in emergencies such as depression because during such periods,
generally, there is much pressure on working capital.
9. Quick and regular return on investments:

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 12

 Advanced Financial Management VI SEM BCOM

Every Investor wants a quick and regular return on his

investments. Sufficiency of working capital enables a concern to pay
quick and regular dividends to its investors as there may not be much
pressure to plough back profits. This gains the confidence of its
investors and creates a favorable market to raise additional funds in the
future.
10. High morale:
Adequacy of working capital creates an environment of
security, confidence, high morale and creates overall efficiency in a
business.
Need or objects of working capital:
1. For the purchase of raw materials, components and spares.
2. To pay wages and salaries.
3. To meet the selling costs as packing, advertising, etc.
4. To provide credit facilities to the customers.
5. To maintain the inventories of raw material, work in progress,
stores and finished stocks.
6. To incur day to day expenses and overhead costs such as fuel,
power and office expenses, etc
Excess working capital:
Disadvantages:
1. Due to low rate of return on investments, the value of shares
may fall.
2. The redundant working capital gives rise to speculative
transactions.
3. It may result into overall inefficiency in the organization.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 13

 Advanced Financial Management VI SEM BCOM

4. When there is excessive working capital, relations with banks

and other financial institutions may not be maintained.
5. It may leads to unnecessary purchasing and accumulation of
inventories causing more chances of theft, waste and losses.
Inadequate working capital:
Disadvantages:
1. The rate of return on investments also falls with the shortage of
working capital.
2. It becomes impossible to utilize efficiently the fixed assets due
to non availability of liquid funds.
3. It cannot buy its requirements in bulk and cannot avail of
discounts, etc.
4. It becomes difficult for the firm to exploit favorable market
conditions and undertake profitable projects due to lack of
working capital.
5. A concern which has inadequate working capital cannot pay its
short term liabilities in time. Thus, it will lose its reputation and
shall not be able to get good credit facilities.
Factors Determining the Working capital Requirements:

1 Nature or character of Business.

2 Size of business or Scale of operation.
3 Production policy.
4 Manufacturing process or Length of production cycle.
5 Seasonal variations.
6 Working capital cycle.
7 Rate of stock turnover.
8 Credit policy.
9 Business cycles.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 14

 Advanced Financial Management VI SEM BCOM

10 Rate of growth of business.

11 Earning capacity and Dividend policy.
12 Price level changes.
13 Other factors.

(1) The working capital requirements of a firm basically depend

upon the nature of its business. Public utility undertakings like
Electricity, water supply and railways need very limited working
capital because they offer cash sales only and supply services, not
products. On the other hand trading financial firms require less
investment in fixed assets but have to invest large amounts in
current assets like inventories, receivables and cash as such they
need large amount of working capital.
(2) The working capital requirements of a concern are directly
influenced by the size of its business which may be measured in
terms of scale of operations. Greater the size of a business unit,
generally larger will be the requirements of working capital.
However, in some cases even a smaller concern may need more
working capital due to high overhead charges, inefficient use of
available resources and other economic disadvantage of small size.
(3) In certain industries the demand is subject to wide
fluctuations due to seasonal variations. The requirements of
working capital in such cases depend upon the production policy.
The production could be kept either steady by accumulating
inventories during slack periods with a view to meet high demand
during the peak season or the production could be curtailed during
the slack season and increased during the peak seasons. If the
policy is to keep production steady by accumulating inventories it
will require higher working capital.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 15

 Advanced Financial Management VI SEM BCOM

(4) In manufacturing business the requirements of working

capital increase in direct proportion to length of manufacturing
process. Longer the process period of manufacture, larger is the
amount of working capital required.
(5) In certain industries raw material is not available throughout
the year. They have to buy raw materials in bulk during the season
to ensure and uninterrupted flow and process them during the
entire year. A Huge amount is thus blocked in the form of material
inventories during such season, which gives rise to more working
capital requirements.
(6) In a manufacturing concern, the working capital cycle starts
with the purchase of raw material and ends with the realization of
cash from the sale of finished products. This cycle involves
purchase of raw materials and stores, its conversion into stocks of
finished goods through work in progress with progressive
increment of lab our and service costs, conversion of finished stock
into sales, debtors and receivables and ultimately realization of
cash and this cycle continues again from cash to purchase of raw
material and so on.
(7) There is a high degree of inverse co relationship between the
quantum of working capital and the velocity or speed with which
the sales are affected. A firm having a high rate of stock turnover
will need lower amount of working capital as compared to a firm
having a low rate of turnover.
(8) The credit policy of a concern in its dealings with debtors
and creditors influence considerably the requirements of working
cap ital. A concern that purchases its requirements on credit and
sells its products/services on cash requires lesser amount of
working capital. On the other hand a concern buying its
requirements for cash and allowing credit to its customers, shall

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 16

 Advanced Financial Management VI SEM BCOM

need larger amount of working capital as very huge amount of

funds are bound to be tied up in debtors or bills receivables.
(9) Business cycle refers to alternate expansion and contraction
in general business activity. In a period of boom i.e., when the
business is prosperous, there is a need for larger amount of
working capital due to increase in sales, rise in prices, optimistic
expansion of business, etc. On the contrary in the times of
depression i.e., when there is a down swing of cycle, the business
contracts, sales decline, and difficulties are faced in collections
from debtors and firms may have a large amount of working
capital lying idle.
(10) Although, if is difficult to determine the relationship between
the growth in the volume of business and the growth in the
working capital of a business, yet it may be concluded that for
normal rate of expansion in the volume of business, we may have
retained profits to provide for more working capital but in fast
growing concerns, require larger amount of working capital.
(11) Some firms have more earning capacity than others due to
quality of their products, monopoly conditions, etc. Such firms
with high earning capacity may generate cash profits from
operation and contribute to their working capital. The dividend
policy of a concern also influences the requirements of its working
capital.
(12) Changes in the price level also affect the working capital
requirements. Generally, the rising prices will require the firm to
maintain larger amount of working capital as more funds will be
required to maintain the same current assets. The effect of rising
prices may be different for different firms. Some firms may be
affected much while some others may not be affected at all by the
rise in prices.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 17

 Advanced Financial Management VI SEM BCOM

(13) Certain other factors such as operating efficiency,

management ability, irregularities of supply, import policy, asset
structure, importance of labour, banking facilities, etc., also
influence the requirements of working capital.

UNIT: DEPOSITORY SYSTEM AND DEMATERIALISATION

Depository system:
A Depository is an organization which holds the securities of a
shareholder in electronic form at the request of the shareholder.

The development of Information technology has paved the way for

many innovative things in the stock exchange. The stocks scam which
shook the stock market during the 1990s also made the government to
take preventive measures to avoid the recurrence of such scams. All
these resulted in the introduction of a new type of stock trade
called dematerialization.

Dematerialization on the other hand is a process wherein the shares,

after being handed over to the depository will be used at the time of sale
or transfer of the shares from one shareholder to another. Since the
physical transfer of share / stock does not occur, it is called Scripless
transfer or scripless trade.
Under dematerialization of shares, physical transfer of shares is
avoided and the transactions take place through the electronic media.
This saves time and stationery and also prevents the loss of documents
in transit.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 18

 Advanced Financial Management VI SEM BCOM

PLAYERS OF Depository system:

There are essentially four players in the depository system:
(i) The Depository

(ii) The Participant

(iii) The Beneficial Owner, and

(iv) The Issuer.

(i) The Depository:

A depository is a firm wherein the securities of an investor are held in
electronic form and who carries out the transactions of securities by
means of book entry. The depository acts as a defecto owner of the
securities lodged with it for the limited purpose of transfer of ownership.
It functions as a custodian of securities of its clients.

The name of the depository appears in the records the issuer as the
registered owner of securities.

At present there are two depositories in India:

(a) National Securities Depository Ltd. (NSDL), and

(b) Central Depository Services (India) Ltd. (CDSL).

National Securities Depository Limited which commenced operations

during November 1996 was promoted by IDBI, UTI and National Stock
Exchange (NSE). Central Depository Services (India) Limited
commenced operations during February 1999. It was promoted by
Mumbai Stock Exchange in association with Bank of Baroda, Bank of
India, State Bank of India and HDFC Bank.

(ii) The Participant:

A participant is an agent of the depository. He functions as a bridge
between the depository and the beneficial owners. He maintains the
ownership records of every beneficial owner in book entry form. Both
UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 19
 Advanced Financial Management VI SEM BCOM

the depository and the participant have to be registered with the

Securities and Exchange Board of India.

SEBI grants necessary approval for the same only on the satisfaction of
the condition that adequate systems and safeguards are available in such
companies in order to ensure against manipulation of records and
transactions.

(iii) The Beneficial Owner:

Beneficial owner means a person whose name is recorded as such with a
depository. A beneficial owner is the real owner of the securities who
has lodged his securities with the depository in the form of book entry.
He has all the rights and liabilities associated with the securities.

(iv) The Issuer:

The issuer is the company which issues the security. It maintains a
register for recording the names of the registered owners of securities,
the depositories. These issuers send a list of shareholders, who opt for
the depository system, to the depositories.

Facilities Offered By Depository System:

The following are some of important facilities offered by depository
system:
(a) Dematerialisation.

(b) Rematerialisation.

(c) Electronic settlement of trade.

(d) Nomination facility.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 20

 Advanced Financial Management VI SEM BCOM

(e) Electronic credit of securities allotted in public, rights and bonus

issue.

(f) Pledging or hypothecation of dematerialised securities.

(g) Freezing of demat accounts.

(h) Stock lending/borrowing facilities, etc.

Advantages of the Depository System:

1. Reduction in paper work.

2. Elimination of risks associated with physical scrips such as theft,

forgery, multilation, loss of share certificates etc.

3. Elimination of bad delivers.

4. Increased liquidity of scrips through speedy settlement and

reduction in delays in registration.

5. Low transaction costs for purchase and sale of securities compared

to physical mode.

6. No stamp duty on transfer of securities.

7. Facilities the issuer companies to update the information regarding

shareholders and to communicate with them in better ways.

8. Attract foreign investors and promoting foreign investment.

9. Emergence of healthy and efficient capital market.

10. Greater opportunity for the development of sophisticated

custodial services etc.
UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 21
 Advanced Financial Management VI SEM BCOM

11. Depository system takes hold of all securities in the country

listed in that particular stock exchange.
12. Introduction of electronic system enables speedy
transactions and accuracy.
13. In a depository system, the security holders can sell and buy
securities by which liquidity is brought to the securities.
14. Blank transfers are avoided and holding of shares in Benami
names is also prevented.
15. Registration and stamp charges for the sale of securities
could be easily collected by the government which was evaded
under the previous system.
16. Depository promotes more activity in the capital market as
trading in genuine share. is ensured under Depository system.
17. Depository avoids use of stationery and prevents delay in
registration of transfers.
18. Dividend and interest on securities are properly distributed
through this system and in the case of convertible debentures, on
the due date, the securities are converted into company shares.
19. Depository acts as collateral security for the raising of 1oans
from any financial institution.

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 22

 Advanced Financial Management VI SEM BCOM

UNIVERSITY COLLEGE OF ARTS-TUMKUR UNIVERSITY Page 23