Tapescript 2

Financial capital is the “liquid assets” of a company, such as cash, bonds, shares, etc. There may be other types of capital, including especially the company’s physical assets (land, buildings, machinery, and equipment).

Financial capital is usually subdivided into stock capital (that received from the company’s stocks) and debenture capital. Debenture capital is the money the company has gained from loans – i.e., borrowed by the company.

Stock capital can be classified according to the type of shares – preference shares, ordinary shares, or deferred shares.

Preference stocks have a fixed rate of dividends, meaning that people who hold these always receive an amount of money equal to their dividends. The advantage is that they receive this money before dividends are paid to the holders of ordinary or deferred shares, and even in bad years. The disadvantages are that holders of preference shares do not have the right to vote at shareholders meetings and cannot influence decisions.

Holders of ordinary shares have voting rights and the right to elect the company’s senior management. They also have the right to increased dividends when the company enjoys greater profits. The disadvantage is that their dividends go down when profits are smaller, and in bad years they may receive no dividends at all.

Deferred shares are shares with deferred (later) payment of dividends. For instance, they may be paid after a company has reached a certain level of development, or at the time of determining its annual profits.

But unlike shareholders, debenture holders are not members of the company. They do not share the member’s risks; they receive a regular income from their investment and take precedence over the shareholders if the company is liquidated - that means, debenture holders are paid before shareholders. This makes debentures a relatively safe form of investment.