UrbanPro

Take Class 12 Tuition from the Best Tutors

  • Affordable fees
  • 1-1 or Group class
  • Flexible Timings
  • Verified Tutors

Search in

State the merits and demerits of public deposits and retained earnings as methods of business finance.

Asked by Last Modified  

Follow 1
Answer

Please enter your answer

Online classes for spoken english/ielts/pte academic/toefl

The deposits that are raised by organizations directly from the public are known as public deposits. Rates of interest offered on public deposits are usually higher than that offered on bank deposits. The amount raised from public deposits is generally used by the company for meeting the requirement...
read more

The deposits that are raised by organizations directly from the public are known as public deposits. Rates of interest offered on public deposits are usually higher than that offered on bank deposits. The amount raised from public deposits is generally used by the company for meeting the requirement of working capital. It can take care of both medium and short term financial requirements.

Merits of Public Deposits:

(i) The procedure of obtaining deposits is simple and does not contain restrictive conditions as in case of a loan agreement.

(ii) Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions.

(iii) Public deposits do not usually create any charge on the assets of the company and hence the assets can be used as security for raising loans from other sources.

(iv) The control of the company is not diluted as the depositors do not have voting rights.

Limitations of Public Deposits:

(i) New companies generally find it difficult to raise fund;; through public deposits due to lack of goodwill.

(ii) It is an unreliable source of finance as the public may not respond when the company needs money.

(iii) Collection of public deposits may prove difficult, particularly when the size of deposits required is large. Retained Earnings The portion of the net earnings which is not distributed amongst the shareholders as dividends and is retained in the business for use in the future is known as retained earnings. It is a source of internal financing and is also termed as accumulated earning.

Merits of Retained Earnings:

(i) Retained earnings is a permanent source of funds available to an organization.

(ii) It does not involve any explicit cost in the form of interest, or floatation cost.

(iii) There is a greater degree of operational freedom and flexibility as the funds are generated internally.

(iv) It enhances the capacity of the business to absorb unexpected losses.

(v) It may lead to increase in the market price of the equity shares of a company.

Limitations of Retained Earnings:

(i) High retention ratio may cause dissatisfaction amongst the shareholders as they would get lower dividends.

(ii) It is an uncertain source of funds as the profits of business keep fluctuating.

(iii) If the opportunity cost associated with these funds is high it may lead to sub-optimal use of the funds.

read less
Comments

Related Questions

Distinguish between public sector and private sector.
Key difference is public sector is to serve the citizens of their country, aided by govt., job security, promotions on basis of seniority private sector is to earn profits for self, aided and administered...
Apollo
What do mean by ATM? Write full form of ATM. Highlight the utilities of ATM.
Automatic Teller Machime, its an electronic machine which help customer to perform financial transactions electronically i.e. cash withdraw, balance check, ATM card PIN change, Mini statement etc.
Sharmistha
0 0
5

How can I  start up a business with less money ?

Choose your interest first and start at a very basic level. Slowly you can expend it as you gain more money.
Priya
Discuss any three advantages of international business.
The advantages of international business are discussed below: i. Employment: International business helps in increasing employment opportunities in the export-oriented industries. ii. Growth of economy:...
Rajeev
0 0
7
Why is cellular phone or cellphone called a mobile phone?
Because we can carry it from one place to other
Mohammad
0 0
5

Now ask question in any of the 1000+ Categories, and get Answers from Tutors and Trainers on UrbanPro.com

Ask a Question

Related Lessons

Different types/kinds of banks in India - Class 11
Different Types of Banks- 1. Central Bank- The central bank is the apex bank in banking structure of any country. The Central Bank controls the flow of currency in the economy. It regulates the other...

Profession and its features - Type of Economic Activities, NCERT Business Studies
CBSE Class 11th, OC/OCM - State Board, ICSE/ISC - Commercial Studies, IGCSE/GCSE - Economics

Global Enterprises at a Glance, MNC and other international forms of business
Global Enterprises: These companies have many markets other than their own country market (domestic market) to sell their product. Their products are available nearly all over the world. Why has globalization...

Business and its Features-Economic Activities-ICSE Class 9 Commercial Studies, CBSE/NCERT Class 11 Business Studies
Economic Activities - Business:Meaning and its features Commerce Std XI/FYJC - Organisation of Commerce and Management (OC/OCM)

Recommended Articles

Raghunandan is a passionate teacher with a decade of teaching experience. Being a skilled trainer with extensive knowledge, he provides high-quality BTech, Class 10 and Class 12 tuition classes. His methods of teaching with real-time examples makes difficult topics simple to understand. He explains every concept in-detail...

Read full article >

Swati is a renowned Hindi tutor with 7 years of experience in teaching. She conducts classes for various students ranging from class 6- class 12 and also BA students. Having pursued her education at Madras University where she did her Masters in Hindi, Swati knows her way around students. She believes that each student...

Read full article >

Mohammad Wazid is a certified professional tutor for class 11 students. He has 6 years of teaching experience which he couples with an energetic attitude and a vision of making any subject easy for the students. Over the years he has developed skills with a capability of understanding the requirements of the students. This...

Read full article >

Sandhya is a proactive educationalist. She conducts classes for CBSE, PUC, ICSE, I.B. and IGCSE. Having a 6-year experience in teaching, she connects with her students and provides tutoring as per their understanding. She mentors her students personally and strives them to achieve their goals with ease. Being an enthusiastic...

Read full article >

Looking for Class 12 Tuition ?

Learn from the Best Tutors on UrbanPro

Are you a Tutor or Training Institute?

Join UrbanPro Today to find students near you
X

Looking for Class 12 Tuition Classes?

The best tutors for Class 12 Tuition Classes are on UrbanPro

  • Select the best Tutor
  • Book & Attend a Free Demo
  • Pay and start Learning

Take Class 12 Tuition with the Best Tutors

The best Tutors for Class 12 Tuition Classes are on UrbanPro

This website uses cookies

We use cookies to improve user experience. Choose what cookies you allow us to use. You can read more about our Cookie Policy in our Privacy Policy

Accept All
Decline All

UrbanPro.com is India's largest network of most trusted tutors and institutes. Over 55 lakh students rely on UrbanPro.com, to fulfill their learning requirements across 1,000+ categories. Using UrbanPro.com, parents, and students can compare multiple Tutors and Institutes and choose the one that best suits their requirements. More than 7.5 lakh verified Tutors and Institutes are helping millions of students every day and growing their tutoring business on UrbanPro.com. Whether you are looking for a tutor to learn mathematics, a German language trainer to brush up your German language skills or an institute to upgrade your IT skills, we have got the best selection of Tutors and Training Institutes for you. Read more