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What is debenture advantages and disadvantages?

What is debenture advantages and disadvantages?

Disadvantages. Debentures are debt instruments issued by the company that promises a fixed interest rate on the due date. The payment of interest and principal becomes a financial burden for the company in case of no profits.

What are the advantages of a debenture?

The use of debentures can encourage long-term funding to grow a business. It is also cost-effective when compared with other forms of lending. Debentures usually provide a fixed rate of interest for the lender, and this has to be paid before any dividends are issued to shareholders.

Which ratio is important for debenture?

The maximum a company should maintain is the ratio of 2:1, i.e. twice the amount of debt to equity.

What are the limitations in issuing of debentures?

Disadvantages of Debentures Each company has certain borrowing capacity. With the issue of debentures, the capacity of a company to further borrow funds reduces. With redeemable debenture, the company has to make provisions for repayment on the specified date, even during periods of financial strain on the company.

What are the advantages and disadvantages of bonds?

Bonds pay regular interest, and bond investors get the principal back on maturity. Credit-rating agencies rate bonds based on creditworthiness. Low-rated bonds must pay higher interest rates to compensate investors for taking on the higher risk. Corporate bonds are usually riskier than government bonds.

What are the advantages and disadvantages of shares?

Benefits of equity share investment are dividend entitlement, capital gains, limited liability, control, claim over income and assets, right shares, bonus shares, liquidity, etc. Disadvantages are dividend uncertainty, high risk, fluctuation in market price, limited control, residual claim, etc.

What are the main features of debentures?

A debenture typically carries the following features:

  • Debentures are nothing but documents.
  • These documents are evidence of debt.
  • The interest on debentures is always payable at a fixed rate.
  • The company may either repay the debt or even convert the debenture into shares or other debentures.

How is debenture ratio calculated?

Therefore, the debt equity ratio, we will calculate as follows: Debt Equity Ratio = (10000+15000+5000) / (10000+25000-500) = 30000/ 34500 = 0.87….Example.

Debentures 10000
Short-term Liabilities 5000
Shareholder’ Equity 10000
Reserves and surplus (R&S) 25000
Retained Profits included in R&S

What are the advantages and disadvantages of corporate bonds?

Corporate bonds are often seen as the “yin” to stocks’ “yang”, and a key component of any diversified portfolio. Corporate bonds are diverse, liquid, and lower volatility than stocks, but also provide generally lower returns over time and carry credit and interest rate risk.

What are the advantages and disadvantages of investment?

Advantages for investors include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.

What are the features of debentures?

Features of Debentures are as follows:

  • Promise :
  • Face value :
  • Time Of repayment :
  • Interest :
  • Assurance of repayment :
  • Parties to debentures:
  • Rights Of Rights of Debenture holder:
  • Terms of issue of debentures :