We know that a company’s management has three key decisions to make for a company to effectively achieve the strategic goals. These key decisions are Investment, Dividend, and Financing Decisions. These decisions are linked and affect directly each other. A well planned and a positive NPV cash flow project can yield high profits for the

In a balance sheet, along with share capital, another important written value is retained earnings. Share capital and retained earnings make up the total book value of the company. These are the portion of profits that any company keeps within itself. The term Capitalization is important to understand, in financial terms, it means creating an

Companies raise equity finance through the issue of shares to shareholders. These shares are issued at a pre-determined rate known as the nominal value of the share. This value is defined in the memorandum of association of the company. A company can issue the shares to its shareholders at the nominal value or a price

Capitalization of profits refers to the conversion of the retained earnings of a company into capital which can then be issued to the company’s shareholders in the form of dividends or stocks. Usually, the latter option of giving stocks is preferred to paying dividends. This option is mainly chosen by companies that do not want

Equity finance is one of a company’s most important sources of finance. Equity finance can have many advantages and disadvantages for a company. One of the main disadvantages of equity finance for a company is that equity finance dilutes the ownership and control of the company. Usually, existing company owners may not want to dilute