Concept of Finance

Finance deals with fund management. Finance prepares plans and implements necessary activities about what amount of fund should be collected from which sources and where & how this fund is to be invested for highest profit in the project. In case of a business firm, fund flows in the business from selling of products. Different types of fund are needed to produce and buy goods for the business, like- purchasing machinery, purchasing raw materials, paying wages to the labours, etc. These are the utilization of fund. Funds need to be collected in a planned way as per the requirement of fund to maintain an uninterrupted production process. Finance means this process related to fund collection and utilization.

If you visit a tailoring shop in your locality, you will see there one or two person sewing with a machine. Again, someone may be cutting clothes or stitching the buttons. So to continue the tailoring business properly, the shop owner has to purchase machines, threads, buttons, scissors etc. of necessary amount. At the beginning of his business he bears these expenses from his own saving. If the fund appears insufficient, then he may take loan from his relatives to overcome the shortage. When the business is in operation, at the end of every month he needs to bear expenses for the payment of workers’ wages, house rent, electricity bill etc. and he pays all these with the money earned by sewing cloths. He also has to plan to pay back the loan money from this monthly collection. An owner of a tailoring shop always expects that he can earn some amount of profit even after meeting all necessary expenditures from the income of the business, by which he can save for the future or can utilize for business expansion even after meeting regular expenses of his family. So if an owner of a tailoring shop conducts business through a proper planning regarding the source of finance and its utilization, only then he can earn profit through smooth operation of the business. Otherwise it will be found that due to cash crises sewing thread cannot be bought timely and the customers are returning. Again, it may be needed to shut down the business due to lack of money to buy a new machine replacing the old one. To conduct the business properly, Business finance deals with when and for what reason how much amount of fund is needed and from which sources this fund should be collected for smooth operation of the business.

There has implication of finance in family too. Generally, every family has one or more than one sources of finance. Income may be obtained from different sources in different families, such as, from service, business, agricultural activities, self-employment etc. Beside these, regular expenditure of a family occurs for daily shopping costs, house rent, school fees, different bills payment etc. As expenditure should be matched with income, in this way, right time of expenditure should also be maintained. If money is insufficient as per demand, then as an example, it may happen that name of the student may be cut down from the register. In case of a family, pre-planned identification of the sources of finance and its utilization is the financial process. Other than daily expenditure of this type, sometimes occasional expenditure may be required in the family which may exceed the income ability of a person. If it is not possible to collect money from regular income sources for such expenditures like buying a new television or refrigerator, then the shortage may be fulfilled through long term loan. In that case, a loan repayment plan needs to be prepared. As a result, the concept of finance helps to determine the sources of fund and make proper management of it to conduct the family smoothly.

Financial process can be understood from the perspective of a school also. School is a social organization whose main objective is not profit earning, there also has a plan of income- expenditure and fund management. Educational institutions generally collects fund from sources of their students’ tuition fees, examination fees, admission fees, etc. The institution has to meet different expenditures with this fund to run the academic activities properly, like- payment of teacher-staff’s salary, house rent, electricity bill, different types of renovation expenses, purchasing computer and furniture. So, ensuring fund management for performing various working process of the institution nicely by considering different sources of fund and different sectors of utilization is financing in the perspective of the school.

Among above examples, tailoring shop is a profit making organization, but family and school are non-profit organizations. Our present topic is involved mainly in financing of profit-making- or business organizations. How is the financial process of a grocery shop? The shop owner earns profit by selling products. But for the purpose of selling, he needs to complete on regular basis purchasing products, paying rent, electricity bill, wages of the workers, etc. as current expenditures. Moreover, sometimes he has to spend a large amount of money for purposes like- expansion of business for the need of the customers, purchasing a refrigerator, etc. These are his fixed expenditure. Thus a grocer requires to invest both in fixed assets and current assets. If income from selling is not sufficient for collecting fund for investment, he has to collect fund from other sources like personal fund, friends-relatives, purchase on credit etc. Again, he may collect large amount of money which he needs to invest in fixed assets usually from commercial banks. In such financing, as there is the opportunity of repaying in long schedule of time, the risk of loan repayment is reduced a bit. In the case of a grocery shop, main activities of business finance are fund management through proper utilization of money received from sales proceeds in meeting current expenditures, some long term investments, collection of money from less risky sources, timely repayment of loan installments, etc.

Square Pharmaceuticals, Bata Company, Kohinoor Chemicals – these are large size business organizations which are called company. Financial process of such a company is not so simple like grocery shop or tailoring shop rather it is comparatively complex. In fund collection, a large company gets more benefit than a small organization. For example, a company collects capital by selling shares in the share market. Company’s goodwill, rate of profit, customer services or consumers’ satisfaction helps to increase the share price in share market. Business finance deals with and provides guidance regarding: from among different sources using which source, when and how much fund should be collected and in which sectors, how much amount and how will it be invested to increase the profit.

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Commercial Banks

Students, by studying this chapter, will be familiar with various commercial banks which play vital roles in the current world-economy. They will know about major and distinct aims and functions of commercial banks, their role in building the society, support in import and export, transfer of funds and development of agriculture and industry.

Commercial Banks

After we have studied this chapter, we will know about

    *Objectives and functions of commercial banks.

    *Sources of income and funds of commercial banks.

Introduction to Commercial Banks

We generally mean commercial banks by the word ‘bank’. Commercial banking system has come through a lot of modernization and specialization through ages. Usually commercial banks collect money from people that are surplus after meeting their essential requirements and lend it to the borrowers. A commercial bank is a profit oriented organization that makes profit by making deposit, transaction and lending of money.

So ‘The type of organizations which make transaction of money or service exchangeable through money, are called commercial bank.’

Objectives of Commercial Banks

Although commercial banks are mainly established for making profit, they have some other objectives. Objectives of commercial banks are discussed below:

1. Making Profit: Commercial banks are established with the fundamental objective of making profit.

2. Medium of Exchange: Commercial banks introduce cheques, bills of exchange etc. as mediums of exchange.

3. Capital Formation: Collecting surplus money from the people and formation of capital is one of the main objectives of commercial banks.

4. Welfare of People: Public welfare is an indirect objective of commercial banks.

5. Assisting in Regulation of Loans: Participating and assisting the central bank in formation of loan policy and loan regulation is one of the objectives of commercial banks.

6. Assisting in Planning and Implementation: Another purpose of commercial banks is to assist the central bank in proper development planning and implementation.

7. Proper Distribution of Wealth: Ensuring proper distribution of wealth by developing all sectors of economy in an equal pace through using monetary assets is another major goal of commercial banks.

8. Employment Generation: A purpose of commercial banks is to create opportunities for new employment by increasing economic activities.

9. Mitigating Gap between Rich and Poor: Through collecting deposit and offering loans, commercial banks enable participation of all class of people in economic activities, which help mitigate economic gaps between rich and poor classes of the society.

10. Forming a Saving-tendency: Another purpose of commercial banks is to create a saving tendency among people.

11. Security: Ensuring security of money, valuable ornaments of people is one of the purposes of commercial banks.

12. Economic Stability: Another purpose of commercial banks is to ensure economic stability by meeting the demand of funds in the market through providing loans and by working in line with the central bank’s loan policy.

13. Development of Trade and Industries: An important purpose of commercial banks is to develop trade and industries by providing all-out support in import and export.

14. Improving Standard of Living: Improving standard of living by ensuring overall economic development is also a goal of commercial banks.

Functions of Commercial Banks

As a monetary organization, banks provide various kinds of service in industrial, commercial, social and economic development of a country. We can divide the functions of banks into two categories:

A) Main Functions

B) Special and Other Functions.

A) Main Functions

1. Acceptance of Deposit and Advancing of interest: One of the main functions of commercial banks is to accept surplus money of the clients in various types of deposits, such as current, savings and fixed deposit. A bank pays interests to the holders of fixed and savings accounts on their deposited amounts in certain rates. No interest is allowed for the current accounts but various other facilities are offered to them.

2. Granting Loans and Charging Interests: Banks offer loans to the borrowers from the deposited money of their clients in various terms. Granting loan is an important function of a bank. Because by providing loans, a bank facilitates productive economic activities on one hand, and on the other hand, the amount of interest received from the borrowers is its main source of income. A bank charges higher rate of interest to its borrowers than the rate of interest it offers to the clients. The extra amount received from the borrowers is a bank’s operational income.

3. Creation of Loan Deposit: When a bank sanctions a loan to the customer, a deposit account is opened in his name and the amount is credited to his account. Then, the amount of money withdrawn by the borrower is debited from that account. In this way banks create deposits by sanctioning loans.

4. Creating Medium of Exchange: Banks use cheque, bill of exchange, certificate, bank draft, pay order, debit card, credit card etc. as payment mechanism and medium of financial transaction.

5. Creation of Capital: Banks create capital by accumulating all separate savings of people through different accounts.

6. Issue Notes: Notes are usually not issued by commercial banks but by central bank. But commercial banks issue notes in indirect forms. Thus, sometimes bank cheques serve as a medium of exchange as an alternative to notes issued by the government.

7. Service as Trustee: Commercial banks serve as trustee of properties of their customers and issue solvency certificates to them.

8. Assistance in Import and Export: An importer needs to convert local currency into foreign currency while an exporter needs to convert foreign to local currency, which is one of the functions of banks. Moreover, banks arrange for payment to the exporters on behalf of the importers through letter of credits (LC) in international business. Letter of Credit plays an important role in international trade by creating financial and business connections between importers and exporters. Providing operative assistance and suggestions in import and export related functions are representative jobs of commercial banks.

9. Service as a Government Treasury: Central bank or any other selected bank serves as the treasury of the government.

10. Change Bill of Exchange, Bill of Transport etc.: Banks change bills of exchange, bills of transport etc. in favor of its clients.

Special and Other Functions

1. Investment of Capital: Besides accepting loans, banks invest capital in industrial plants and commercial organizations, which help increase gross national production and capital mobilization.

2. Role in Economic Growth: Banks help a country’s overall economic growth, especially development of trade, commerce, transportation, communication, housing and education etc.

3. Money Transfer: Banks transfer money inside and outside the country through their mediums of exchange.

4. Security of Money: Banks ensure security of public money by keeping deposits. Besides, clients can also protect ornaments, documents of their properties in banks by using locker service.

5. Guidance: Offering various types of business guidance when sought by the clients and management of their properties, for example, collecting house rents are also included in the functions of banks.

6. Employment Generation: As a monetary organization, banks help in employment generation and indirectly create new employments by supplying loans in a country’s economy.

7. Loan Regulation: As the regulator, central bank regulates supply of money and loans by expanding and contracting loans given by the commercial banks. This is vital for ensuring economic stability and regulating inflation of money.

8. Agricultural Development: Banks facilitate agricultural development by offering loans and other assistance in this sector.

9. Industrial Development: Banks assist industrial plants by offering long-term loans.

10. Regional Development: Regional development is also supported by banks as they have network of branches in different areas of the country.

Sources of Funds of Commercial Banks

Commercial banks usually collect funds from the following sources, some of which are external sources and some of which are internal sources.

1. Paid Capital: First and foremost source of banks is paid capital. The capital is provided by the owners for Joint Stock Company, and in cases of joint capital company, capital is formed by issuing shares.

2. Reserve fund: At the time of declaring dividend, a certain portion of the profit is set aside every year which is called reserve fund. This is fund is used as capital in future.

3. Deposits: Public deposits are a powerful source of funds to a commercial bank. There are three types of bank deposits (i) current deposits (ii) saving deposits and (iii) time deposits, which the clients do not withdraw all at once. So, the bank can earn more capital by using this money as loans or business investment.

4. Borrowing: Commercial banks in times of emergency borrow loans from the central bank or from other commercial banks of the country. They can also raise funds by issuing security bonds, credit certificates etc.

Sources of Income of Commercial Banks

Commercial banks earn money through different businesses, which are detailed below

1. Interest on Loans: Commercial banks lend money to the industrialists, traders or consumers, and charge interest on the loans. This is their main source of their income.

2. Investment: Commercial banks earn profit by investing in profitable sectors like shares, issuing letters of credit, government security etc.

3. Bill Discount: Commercial banks also earn money by making discounted payment of bills of exchange in advance.

4. Commission Received from Bank draft, Travellers cheque etc.: Commercial banks earn a big amount of money by charging commissions on bank drafts, traveller’s cheques etc.

5. Correspondence: Commercial banks also earn money through charges received by offering various correspondence services for the clients at their request.

6. Rent of Lockers: People can use lockers of commercial banks for safekeeping of their valuable documents, ornaments etc. by paying certain charges, which is also a source of income of the commercial banks.

7. Agency Service: Commercial banks perform numerous agency services on behalf of their clients, such as collection and payment of cheques or bills etc. Commercial banks charge commission for such services which earn income for them.

8. Brokerage in Purchase or Trade of Shares: Banks also earn through brokerage in purchasing or trading shares.

9. Foreign Exchange: Commercial banks earn profit by acting as brokers in foreign exchange, too.

10. Import-Export: Commercial banks earn income through commission or service charges for the role it plays in international trade and transactions.

11. Letter of Credit: Banks charge commissions for issuing letters of credit on behalf of importers.

12. Trustee: Banks also charge commissions for performing services as trustee.

Expenditures of Commercial Banks

Commercial banks make following expenditure in operating its business:

1. Giving interest to the clients on their deposits

2. Giving interest to the central bank on the borrowed amount

3. Giving interest to commercial banks for the received loans

4. Payment of salaries and allowances to the employees

5. Allowances of directors and managers

6. Auditor’s charges

7. Charges for cases or other legal measures for collecting unrecovered loans

8. Rent for offices and warehouses

9. Tariffs and taxes

10. Insurance Premium

11. Charges for making correspondence through post office, telephone, telex, fax, swift etc.

12. Advertisement cost

13. Training charges of the employees

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Business Management Organizations

There is a correlation between the development of management and the evolution of the civilization. Initially, management was stipulated to family and group based. The concept of management spread over all spheres of life with the progression of civilization. The concept of management got huge popularity from the business operating method of the businessmen. Generally, Management is the process of making others to do necessary jobs to achieve a certain objective. In this chapter, we shall learn about the concept of management, activities and various elements of management in an organization.

Business Management Organizations

After reading this chapter, we shall be able to –

    * Explain the management concept & activities.

    * Describe the concept and necessity of planning.

    * Explain the concept and importance of organizing.

    * Describe the concept of leadership and its types.

    * Identify the quality of a good leader.

Business Management Concepts

Mr. John has been operating a business of fabrics for five years. All kinds of fabrics and readymade garments are available in his shop. He has been operating the business alone. He started to think about appointing a staff with the expansion of the business. Recently, he has recruited a staff. As a result, he was relieved a little bit from the work load. But, after some days, the customers of the shop brought charges against the staff for opening the shop late and for his misbehavior. Mr. John listened to his customers attentively and advised the staff to protect the goodwill of the business. The staff realized his fault. He got motivated to work more attentively in future.

In the above mentioned story, thinking of appointing staff, recruitment of the staff, giving attention to the customer’s objection against the staff and taking measures accordingly, all these activities of Mr. John is the part of his business management.

Management is the efficiency and strategy of doing things by utilizing others potential. According to Henry Fayol who known as the father of the modern management “Management is the combination of forecasting and planning, organizing, commanding, coordinating and controlling.” Some features of management are:

1. Management is a systematic process of some tasks.

2. Management is operated to achieve a predefined goal.

3. Management is a process based on team

4. Management is a continuous process. It is necessary to take new strategy of management with the passage of time.

Functions of Business Management

All the activities performed to achieve a predefined goal are known as management. Many activities have to be performed under management to achieve the defined target through operating the human resources and other elements of business. The functions of business management are descried below:

1. Planning: Planning is the guideline for future work process. Planning is the process to specify that what jobs to be done, who will do, when and how it is to be done in future to accomplish the predefined goal of the business organization. Planning is the first job of management.

2. Organizing: Organizing is known as the process of accumulation of human resources and other elements of the business and distribution of power and responsibilities among the workers and building interpersonal relationship among them.

3. Staffing: Major element of an organization is its work force. It is termed as the human resources of the company. Staffing includes collection of worker, selection, recruitment and training, promotion, transfer and lay off.

4. Directing: Direction is called to commanding the workers to implement the plan. The manager gives order to the worker about when, what and how to do a job. Workers can show most efficiency if the direction is appropriate. That is why many has compared direction with leadership.

5. Motivation: Motivation is the process of making the worker attracted and encouraged towards the job of the organization. Because of motivation, the workers become responsible and perform with quality.

6. Coordinating: Coordination means effective communication between the workers of the organization, various divisions and departments. Through coordination all the workers forms a team which helps to perform with unity.

7. Controlling: Controlling refers to the activities related to looking after whether the works are done according to the plan, finding variances if any, and taking corrective measures if necessary. Controlling makes the implementation of planning easier.

Planning in Business Management

The teacher of Business Entrepreneurship, Mr. William entered the class and exchanged greetings. The students also welcomed him spontaneously. He wanted to know about the experience of visiting a factory before starting the discussion of classification of industry.

He found that most of the students do not have any practical experience of visiting a factory. All the students become overwhelmed in joy when they heard about his intention of visiting the BSCIC industrial area of the district. He made everybody to calm down and said that they need to take permission from the Principal. Besides, some more things to be ensured:

* When to go.

* How to go.

* How many teachers and students shall accompany.

* How to contact the authority of the visiting company.

At last he asked the students: What it can be called to forecast or thinking to visit the factory. The students replied in chorus: Planning. He thanked everybody. He told them that the prior thinking or forecasting before starting a job is called planning. More vividly to say that Business planning is the advance decision making process of what to do, when to do, where to do and within how much time it is to do about implementing a particular job. Correct planning helps to achieve target easily. With the help of planning, proper utilization of assets and elements of the organization is ensured. Duties and responsibilities can be distributed among the workers appropriately. As a result, they become responsible and efficient.

Concept and Importance of Organizing

Mr. Vicky, the owner of the ‘Refresh Fruit General Store’ has been doing business in his locality with reputation for long. He has accumulated various products like readymade garments, cosmetics, baby foods and toys from Dhaka and Chittagong. But, the most lucrative things in his business is the pickle made by himself. Every year he buys Mango, Hog Plum, Jujube and Olive from the local market to make the pickle. For this reason, seasonally he appoints some women to help him to make and bottling the pickle. His pickle gets reputed day by day. He decided to open a separate division to make and sell the pickle. He permanently appointed the women who were temporarily helping him to make pickle. A person was appointed as manager. He distributed the responsibility of collecting raw materials, making and preserving the pickle all the year round.

All the jobs done by Mr. Vicky are the part of management of the business. These works are called organizing.

As per planning Mr. Vicky has accumulated and coordinated the human resources and other elements of the business for proper utilization and has distributed jobs among the workers with duties and responsibilities. Organizing helps a company to achieve the objectives in an easy way. Proper utilization of the assets of the company is ensured. Controlling and operating the workers and employees working in the organization becomes easier. The velocity of work increases with the help of strong interpersonal relationship.

Leadership Concepts

Mrs. Mary started his business Wood-Nymph Furniture with a small amount of capital. But, his hard work, honesty, efficiency to direct the workers and eagerness to be successful in business has made him a special person in the society. Now, five branches of his business are running with reputation. He listens to the workers demand and complains attentively and tries his best to solve their request. On the other hand, the workers are also working in the organization with sense of belongingness, always trying to increase the goodwill of the business by fulfilling the demand of the customers.

From the above story we find the following qualities of Mrs. Mary:

1. He is hard working He is honest

2. He is efficient to direct the workers

3. He has strong inclination for the development of the business.

4. He is cordial to listen to workers demand and objections and positive to solve the problems.

All the above mentioned qualities of Mrs. Mary can be called the quality of leadership. In case of business, leadership means the quality and strategy to encourage workers to perform jobs to achieve some particular goal.

Leadership Characteristics

Democratic Leadership

1. Leader consults with the subordinates.

2. Take advice from the subordinates.

3. Collects information from the workers.

4. Gives the workers opportunity to ask question.

5. Answer them.

6. Expects accountability.

7. Accountable to the worker.

8. Workers feel them to be a part of the organization.

Autocratic Leadership

1. The leader only makes order, there is no accountability.

2. Relies solely on his own power and capability.

3. Cannot rely on the ability of the workers.

4. Never takes the opinion or advice of the workers.

5. Keeps negative mentality about the workers.

6. Keeps workers always under pressure.

7. Workers never take ownership responsibility of the business.

Laissez Faire Leadership

1. Leader remains tension less after assigning responsibilities to the subordinates.

2. Leader does not like to work by himself.

3. Do not give particular order to the workers.

4. Workers do not have the accountability.

5. Workers can work of their own will.

6. Takes more time in decision making.

7. The success of the organization depends upon the good interpersonal relationship and team work.

Bureaucratic Leadership

1. Leader orders the worker to make the work done.

2. Workers give priority to the ideology than the leader and are bound to follow them.

3. All the times have to follow the rules.

4. Order of the leader than the leader himself and discipline than personal relationship is more important.

Leadership Skills and Abilities

He who leads is the leader. The task of the leader is to encourage and motivate the workers of the organization to achieve the defined goal of the business. A leader must have some qualities or characteristics to perform the serious task of a leader. Because, the good quality of a competent leader can make the success of the company easier, and the similar way their incompetency can fail the organization. The leadership skills and abilities are analyzed below:

1. Physical capacity and soundness: A leader has to take physical and mental pressure and perform physical labor. For this reason, his physical capability is important as well as his mental and physical soundness. Besides, his physical structure should also be attractive.

2. Keen Personality: The leader should be calm quiet in nature. The subordinates honor the leader having decent attitude and attractiveness.

3. Education and Experience: Formal education helps to achieve many positive knowledge, efficiency and view. Besides, experience makes them enriched. So it is expected that a leader should be educated and experienced.

4. Courage & Honesty: Leader has to always lead from the front. He has to perform a lot of challenging and risky job. He has to be courageous and honest.

5. Hard working and flexibility: Hard work is the main of performing any job. A leader has to work hard to carry out his responsibility. If, the leader is lazy, does not do work and becomes tired at less, then it becomes difficult to direct the subordinates. Besides, if he does not have flexibility, it will be difficult for him to lead.

6. Responsibility and Cooperation: Leaders sense of responsibility works as the motivating factor for the workers. On the other hand, cooperative mentality to all makes it easier to achieve the goal of the company easily.

7. Organizing Efficiency: A leader must have efficiency in all aspects of the organization so that he can find the right people for the right job.

8. Realizing human resources relation: A successful leader must have the quality to realize the expectations, qualification, personality, taste, point of view of the subordinates. Effective and long run results cannot expect if leading is not done considering the mentality of the subordinates.

9. Power to take decision: Success of the organization depends upon taking the right decision at right times. Leader has to take decision on the basis of his wisdom and far sight ability. Decision taken by the leader increases the reliability and mental strength.

10. Gender Awareness: A leader is always compassionate and showing honor to the subordinates whether they are men or women. He must be neutral. He has to lead considering the different mentality of men and women and their social status.

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Village Fair

The following paragraph on “Village Fair” (Example – 1)

A village fair is usually a temporary gathering under a big banyan tree or on the bank of a river. It is held once or twice a year and lasts for a day or two or may be extended up to a week. Children go to the fair in a group wearing colorful dresses. They move hither and thither, feel charmed with colorful things, buy toys and whistles, flute, puppet shows and circus shows. People gather there for selling and buying commodities and for amusement. It provides circus and puppet show, music and acting for entertainment. These are the specialties of a village fair. Besides, it makes available those essential commodities which are not found in the village market or hat. It has a great impact upon the villagers. It breaks monotony of the villagers, boost up their economic activities and energize them with a great deal of zeal and enthusiasm.

The following paragraph on “Village Fair” (Example – 2)

In our village a village fair is held on the bank of the river that flows through our village. It is an annual gathering of ours. We can see all and exchange our views with each other in our village fair. The fair lasts for three days and a vast crowd of people from all walks of life gather here wholeheartedly. The fair acts life a small exhibition of hand-made things. There are many forms of amusement in the fair. We enjoy cercus shows, merry-go-rounds, magician’s and juggler’s feats with heart’s content. In fact, this fair held in our village is an annual entertainment to us.

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Social Networking Service

The following paragraph on “Social Networking Service”

A social networking service is actually an online service. There are a good number of social networking services such as Facebook, Twitter, LinkdIn, Youtube, Hi5, Skyrock, Friendster, Orkut, Skype etc. All kinds of social network services are web-based. Nowadays, these social networks are expanding so fast because most of the social network services are cost free. A user can make the use of them free, paying a very little to the internet service provider. He or she can make a personal profile before the entire online community. It is really like presenting oneself before the entire world. The users can also look into other people’s profile if they are interested. It is simple and easy. Besides these, social networks allow users to upload pictures, multimedia contents and modify the profile. But there are privacy protection measures too. A user himself or herself decides over the number of visitors or viewers and what information should be shared with others. So, benefits are many behind social networking services. But these social networking services are not free from demerits. The young generation specially school-going, college-going and university-going students are addicted to such kind of social networks. Even the various types of crimes like killing, smuggling, fraudulence, Eve-teasing etc. are likely to happen with the aid of social networking services. Any social movement or anti-social movement can take place with the help of these networks. So, the whole world community must be aware of the bad effects of the social networking services.

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Renewable Energy

The following paragraph on “Renewable Energy”

The energy sources have always been a major actor of change throughout history. Now the countries of the world rely heavily on petroleum, coal and natural gas for their energy sources. There are two types of energy sources such as renewable and non-renewable. Hydro-carbon of fossil fuels is non-renewable sources of energy. Reliance on them creates real big problems. First, fossil fuels such as oil, coal, gas etc. are finite energy sources and the world eventually will run out of them. Secondly they will become too expensive in the coming decades and too damaging for the environment to repair. Thirdly, fossil fuels have direct polluting impacts on earth’s environment causing global warming. Besides, the era of wood and bio-mass has almost come to an end. The age of oil and natural gas would soon be over within the next few decades. So, the only solution is that mankind can look to the massive use of solar energy in future because it has some advantages over other forms of renewable energies. The sun’s heat drives the wind and this wind energy can be captured with wind turbines to produce electricity. Then the wind and the sun’s heat cause water to evaporate. When this water vapor turns into rain or snow and flows downhill into rivers or streams, its energy can be captured as hydroelectric energy. Scientists have identified hydrogen as another form of renewable energy source. It is the most abundant element in nature. It is examined that hydrogen, separated from another element, can be burned as a fuel to produce electricity. Our earth’s interior contains molten lava with tremendous heat. This heat inside the earth produces steam and hot water which can be tapped as geothermal energy to produce electricity, for heating home, etc. Besides, ocean energy comes from several sources. Ocean’s force of tide and wave can be used to produce energy. So, it is high time the developing or developed countries took essential initiatives tapping alternative energy sources mainly known as green or renewable energy sources.

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Information Technology

The following paragraph on “Information Technology”

Modern science has blessed us with many wonderful inventions which have made life easy and comfortable. Information technology plays a great role in the globalized world which comprises television, radio, computer, wireless, e-mail, tax, the internet etc. Television and important invention of information technology can send message from one corner of the world to another with the help of electric waves.  Radio or wireless, another wonderful gift of modern science can transmit information in a second from one corner of the world to another. On a radio set, we hear the voice of the speaker from any part of the world. Computer with its magical power performs unbelievable things in our life. It seems to be fulfilling our dreams. In fact, computer has brought about a revolutionary change in our lifestyle. It can run a business, play chess or even compose music and many other important tasks, Email and the internet which are the latest additions to this technology with their wonderful performance in the communication system have become great blessings to our modern life. A man just pushing the keys of a computer can communicate with any person he wishes. In the field of technology, science is ever going on. It will conquer space. Scientists are now on the process of bringing out the hidden information from space. They will go to different planets. Science knows no defeat, knows no retreat. It is ever going on inventing newer things. So, information technology is on a triumphant march.

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Family Festivity

The following paragraph on “Family Festivity”

I have had a family festivity recently. It was the occasion of my younger brother’s birthday. On the occasion, a room was decorated with colored paper and festoons. On the wall the word ‘Birthday’ and the name of my brother were written with colored letters. Friends and relatives were invited to attend the party. A big cake was prepared on which the word ‘Birthday’ was written with cream and candles representing years were placed on the cake. My brother cut the cake off and all others sang ‘Happy birthday to you’. Then the pieces of cake were distributed among all. Fruits, sweets and some other foods were served on the occasion. On the party everybody was in a cheerful mood and this is the most interesting aspect of such a party. At the end my younger brother spoke a few words thanking the guests for their heartfelt participation and beautiful gifts. I was greatly satisfied when the party came to an end successfully. I think such festivities are very important in our monotonous life.

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Environment

The following paragraph on “Environment”

The environment consists of the air, water and land in which people, animals, and plants live. All the things that make up the environment are interrelated. If this relation is disturbed in any way, the total environment changes and thus creates a negative impact on all. Now the main elements such as air, water, soil etc. are getting polluted by people’s unwise activities and thus the world is gradually getting uninhabitable. Water, one of the most important elements of the environment, is getting polluted by different waste materials. Air, another vital element of the environment, is getting polluted by the huge emission of carbon dioxide from increasing mills and factories and vehicles. As a result, the word temperature is increasing day by day and the sea-level is rising up. Thus, the lower parts of the world may be flooded. Natural calamities such as flood, cyclone, storm etc. are the products of these temperature rises in the word which is called greenhouse effects. Moreover, owing to these pollutions, millions of people all over the world die unnecessarily. To protect the environment, strict steps should be taken up. With this end in view at first people of world have to be made conscious about these things, Deforestation which is harmful for the environment must be stopped. Tree plantation should be carried on all over the world. At the same time population control is a must because overpopulation creates over pressure over nature and thus spoils it.

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E-Learning

The following paragraph on “E-Learning”

E-learning is the latest mode of education through an electrical process. It is different from conventional learning. In e-learning, students don’t need to carry traditional books or writing pads or even pens or pencils. Like the traditional classroom, there is no need of blackboard or desks. In this system, a tutor can answer the questions of learner even when he is on board a flight to a distant country. But in the modern technology-based world, a student must be first equipped with the basic knowledge of technology such as computer, the internet etc. Without the knowledge of information and communication technology, a learner can’t cope with e-learning. It also includes a great number of types of media that provide the learners and teachers with text, radio, images, animation and streaming video. In this regard, different social networking services have a huge potential to help this sector. Now it has reached a greater sophisticated state. Registration, admission, classroom entry and exit, class work, attendance, discussion, course plan feedback, exams and finally certification take place electronically through computer and the internet technology in a virtual campus. Everything is digitalized and conducted by a system called Learning Management System (LMS). So, undoubtedly the online education programs blend the various components of e-learning. The revolutionary concept of e-learning is in its initial phase in many countries of the world.

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Cyber Cafe

The following paragraph on “Cyber Cafe”

A cyber cafe is a place of new internet communication system. A cyber cafe is practically a network of all networks. Now a man just pushing the keys of a computer can communicate anywhere he wishes. A student sitting in the cyber café can use the London library and can collect his necessary information. A businessman can see the condition of the world market just by sitting in this café. To get appropriate information a person has to communicate in the appropriate internet number. In this system, a man can make friendship with a person of another part of the world and a person can even choose his/her life partner through the internet communication. For this reason, people call the cyber café a house to play ‘an electric brain’.

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Communicative Competence

The following paragraph on “Communicative Competence”

Communicative competence means the ability to use a language appropriately. To be competent in a language, one has to use it in different situations. Communicative competence can be developed in two ways. The first is acquisition and the second is learning. Acquisition is similar to the way people develop ability in their mother tongue. It is a natural and subconscious process. In this process, one learns a language spontaneously. On the other hand, learning is conscious knowledge of a language. In this process, one has to learn the four skills of a language- listening, speaking, reading and writing. Besides, one has to know the rules of language use, and practice to communicate with others by using the language. Between the two ways of learning a language, acquiring a language is more successful and longer lasting than learning because acquiring a language is more successful and longer lasting than learning because acquiring a language is a natural process and we learn it naturally. Communicative skill cannot be easily achieved. By practicing a language and communicating with others, one can attain mastery in it.

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Air Pollution

The following paragraph on “Air Pollution”

Air is a vital element of the environment. When it contains the elements which are hazardous for human health, it is called polluted. Air is important because, without it we cannot live. It is essential for human life. Air is polluted in many ways. Air pollution can be of two types- indoor and outdoor. The air indoor under certain circumstances can be polluted to a hazardous level. Radon is released from rocks and soils that carry radium. If its decay is inhaled it leads to lung damage. Asbestos fibers also are a potential source of lung cancer. A single burning cigarette releases particles to the order of 1012. On the other hand smoke emitted by trucks, buses and other vehicles causes air pollution. We should take proper steps to control air pollution. To improve our life style, we should not use any harmful elements. We should give up smoking.

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A Sunset Scene

The following paragraph on “A Sunset Scene”

A sunset scene is a splendid scene. The mellow sun going down over the western horizon looks lie a golden disc. Trees and plants, crops and creepers everything is lit up with a golden glow. The pieces of floating clouds look like a stretch of fire. As the sun reflects through the rivers, canals and ponds they seem to enshrine in their bosoms a golden ball with outstretched lustre of liquid fire. Then gradually the sun sinks below across the hazy trees at the distant horizon. The night falls with a pall of darkness. The sun sets for the night and leaves the world under the reign of darkness to rule the roost.

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A Moonlit Night

The following paragraph on “A Moonlit Night” (Example – 1)

The night in which the moon shines brightly in the cloudless clear sky is generally known as a moonlit night. A moonlit night has a splendid and charming look. It is very glamorous. The moon seems to be a silver disc and few sparking stars twinkle around it. The ponds, canals, rivers, trees, creepers and gardens glitter with silver shine. The moon bathes the whole world with her divine light. It soothes our eyes and refreshes our minds. Men come out of the house, move around interact with joyful mood and gossip in the yards and fields. Young boys play, little girls and boys make merriment and amuse themselves. Animals also get delighted by the moonlit night and roam about blithely. People of all ages and occupations enjoy a moonlit night. It is a great pleasure and source of recreation for the people of almost all ages, tastes and temperaments.

The following paragraph on “A Moonlit Night” (Example – 2)

A moonlit night is really charming and enjoyable. It presents a beautiful sight. It dazzles our eyes and sooths our heart. In a moonlit night the moon looks like a disk of silver. The moon bathes the whole world with her silvery light. The watery places mean canals and rivers and tanks seem to smile on a moonlit night. The grand spectacles the canals, river and tanks present cannot be described in words. The whole nature looks bright and appears in celestial light. People of all age enjoy a moonlit night. Young boys play and little boys and girls make merriments and amuse themselves. A moonlit night is really enjoyable in a newly married couple. Men and women of middle ages cannot come out of doors. They pass some hours in gossiping and storytelling and enjoy the night. Poets of all languages have sung highly of a moonlit night. Even lower animals come out at night and little insects also fly here and there. A moonlit night is pleasant and fine indeed.

The following paragraph on “A Moonlit Night” (Example – 3)

A moonlit night is really pleasing. It gives a nice view. The moon shines in the cloudless sky with all her grams. She looks like a glossy dish of silver. The sparking stars twinkle around the moon and make her more beautiful. The sky looks like a canopy beautified with the shining moon and glittering star. The moon washes the whole world with her silvery light. Everything appears to be coated with silver. The trees and creepers look bright and sparking. A moonlit night in the rural areas of the world really offers a beautiful sight. Dazzling light removes the gloom of the night. It offers a sight that cheers the mind and leaves a deep impression on it.

The following paragraph on “A Moonlit Night” (Example – 4)

A moonlit night offers a very charming view. It is just a thing of beauty and joy. In the day-light some scenes are beautiful and others may not be so, but the same scene in the soft light of the moon looks beautiful as a poet’s dream of fiery land. If forests, houses. Rivers and buildings all such man-made of natural objects as these are beautiful by day. They look more beautiful in a moonlit night. The scenic beauty of a river or an ocean in a moonlit night can better be enjoyed then described. It has the magical power of transporting us to a land of beauty and imagination.

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A Journey by Boat

The following paragraph on “A Journey by Boat”

A journey by boat that I remember vividly was the one I made to the house of my broth-in-law. I enjoyed it from the beginning to the end. We had hired a boat, and all of us in the family were going together. We began our journey early in the morning from a place near our home. For a time we moved along the canal. The canal was narrow. There were trees and houses on both sides. Soon we reached the river Padma. It was autumn. The weather was pleasant. We enjoyed the sun is a clear, bright sky. The sights and scenes that we saw on both sides of the river were very charming. At about 3 p.m. we reached my sister’s house. The warm reception we had on our arrival was memorable. I still feel a sense of thrill when I remember the journey with its enchanting sights and scenes.

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3G, Mobile Communications

The following paragraph on “3G, Mobile Communications” (Example – 1)

3G, the latest discovery in mobile communication is designed to be digital mobile multimedia offering Broad Band mobile communications with voice, video, graphics audio and other information. It is the last product of the evolutionary process of the mobile communication industry. It has more flexibility and suitability than the previous ones. (3G) Multimedia services add high speed data transfer to mobile devices, allowing new video, audio and other applications including the Internet services through mobile phones. Through this device, people enjoy various advantages of the internet such as entertainment services, information collection, connecting with any one of the world according to their wish etc. Speeds up to two megabits per second are achievable with 3G. The data transfer rate will depend upon the environment. 3G facilitates several new applications that have not previously been readily available over mobile networks due to the limitations in data transmission speeds. These applications range from Web Browsing to file transfer to Home automation (the ability to remotely access and control in house appliances and machines). (3G) Multimedia is certainly one of the greatest devices in communication. Its importance in our life can be easily perceived. It has made our life easy and comfortable. But it should be used properly. Its misuse will bring great harm to the users especially to the younger generations.

The following paragraph on “3G, Mobile Communications” (Example – 2)

Mobile phone is one of the wonderful wonders of science. It has added a new dimension to our life and to communication system. It is a telephone system that works without any wire. It can be moved easily and quickly from place to place. Through mobile phone, we can send messages to distant places, play games and sports, know about time, solve the work of calculation and be aware of different kinds of news and views. At present the popularity of the mobile phone is increasing. Many companies are also being set up for selling mobile phone. The price of mobile phone is also decreasing in comparison with the past. People are being encouraged to buy a mobile-phone set at a cheaper rate. However with the touch of science and technology the whole world seems to be a global village. In a very single moment, we can communicate with the people living in a very distant place. With all its advantages, the mobile phone has still some drawbacks in disguise. Though the price of it is decreasing, per minute bill is not decreasing. So everybody cannot possess it. Scientists have recently discovered that mobile phone can cause cancer to the users. Besides, it has become a fashion with the young people. Last but not the least terrorists are using it to spread out terrorism all around the world. But in spite of all these disadvantages, it can be finalized here that the necessity of a mobile phone in exchanging messages cannot be denied in the true sense of the term in our practical life.

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Cultures

The following paragraph on “Cultures”

A society’s culture comprises all of its ideas and ways of behaving. Language, music, moral ideas, ways of working and playing, the tools and other objects made and used by people in society. All these are reflected in a society’s culture. Repeated study over a person’s activities is a good way of finding about a person and studying the important patterns of an entire society gives us knowledge of the culture of that society. Cultural difference is a reality from individual to individual, class to class, society to society and country to country. Now culture is under the process of modification, unification or combination under the great influence of information technology. The countries of modern globalized world are being affected with the culture of each other and thus native culture is approaching towards world culture. The major components of culture related to science, philosophy, poetics, economics etc. are being shared by the world people in this age of globalization. The philosophy relating to culture should be humanistic. Human beings should not be over-exultant over their cultural superiority. Rather all cultures of every country flow to the bright sea of humanity.

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Bond and Debenture

Bond

Bond is another tool of investment for the investors. You have known earlier that bond is a document or agreement through which a company gathers loan capital from the investors. In our country most of the companies gather loan capital through taking loans from banks or other financing organizations. As a result, bond is not yet so much familiar in our country.

Bond has some particular own features and characters from the perspectives of investors. Those are discussed below:

1. Mortgage: A company usually keeps its property or documents as mortgage against bonds. As a result, if the company is not able to meet the claims of the investors, they can realize their money by selling these properties.

2. Date of Maturity: A bond issued by a company has some certain date of maturity. On that date of maturity the investor gets back the written value as mentioned in the bond.

3. Creditor: Bond owners are considered as the creditors of a company. So they have no voting right.

4. Transform-ability: Many a time, a company may sell transferable bonds to the investors. In such cases, if the bond owners wish, they can transform the bonds at their possession to certain number of general shares as mentioned in the conditions of the debenture.

Advantages

1. Rate of Interest: As the rate of interest is fixed, the income of the investors in bonds is fixed. As a result, they have less uncertainty of income. However, sometimes the rate of interest may also change.

2. Less Risk: As immovable or other properties are kept as mortgage against bonds, the risk of investors in bonds decreases.

3. Rights on Profit and Properties: Bond owners are given interest on their investment at the very first from the income of the company. On the other hand, at the time of liquidation or closure of the company, claims of the bond owners are first met before meeting the claims of others. That is, the claims of bond owners get priority over the claims of the general and priority shareholders.

Disadvantages

1. Less Income Rate: As there is less risk in bonds compared to general shares and priority shares, the rate of income of the bond owners is less.

2. Control: As like that of priority shares the bond owners do not have voting right, they cannot involve themselves in the control of the company.

Debenture

Debenture is a bond without mortgage. So, most of the characteristics of bonds prevail in debentures. Like bond and priority shares, debentures are also not found so much in our country.

Compared to bond, its special feature is there is no mortgage against debenture. As there is no mortgage against debentures, investors do not buy debentures of all companies. Investors usually invest their money in debentures issued by big renowned companies.

Advantages and Disadvantages of Debenture

As a tool of investment some advantages and disadvantages of debentures are as follow:

Advantages

1. Regular Income: Like that of bonds, an investor gets a regular income at some fixed rate from debentures.

2. Fixed Term: Debenture is popular to many investors for its fixed term.

Disadvantages

1. No Security or Mortgage: Since there is no mortgage against a debenture, it is risky.

2. Control: Like that of bonds, an owner of debenture does not have any voting right. Hence, owners of debenture have no control in the operation of the company.

3. Rights in Profit and Property: An owner of debenture enjoys an equal status of general creditors. So, before paying interest to the owners of debenture, interest of the bond owners is paid from the income of the company. In this way, at the time of liquidation or closure of the company, claims of the debenture owners are met after meeting the claims of the bond owners.

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Share Investment

Share, Bond and Debenture issued by companies are taken as different tools of investment for the investors. Each of these tools of investment used as sources of investment has its individual features, advantages and disadvantages. Expected income and risks of the investors from these tools of investment are different. So, an investor should know about different sides of each of these tools of investment before taking his decision for investment. In this chapter we shall be able to know about these tools of investment from the perspectives of the investors.

After we have studied this chapter, we will be able to

* Describe the concepts of share, bond and debenture. Classify different types of shares.

* Identify the comparative differences among different types of shares. Be able to describe the differences between bond and debenture.

* Be able to explain dividend policy.

Introduction

In the previous chapters you have known about general share, priority share, bond and debenture as sources of financing in business firms. These tools of financing issued by companies are considered as sources of investment for the investors. An investor can invest his money in different sectors. Assume your father has 10 thousand dollar. He can, according to his wish, put it in a bank as fixed deposit or he can invest it in one or more tools of investment – general share, priority share, bond and debenture issued by companies. As sources of investment, each of these has its own special features. Expected income and risks of the investors from each of these tools of investment are different. Special features and advantages-disadvantages of each of these as source of investment and their comparative evaluation have been discussed in the following paragraphs.

General Share

Selling of shares is an important source of gathering fund for public limited companies. The voluminous total capital of the company is divided into small (equal) units and those are sold as shares. After gathering minimum capital with the approval of the government, applications are invited from the public through giving an advertisement in the newspaper with publishing a paper of statement with information about the company. When applications submitted are numbered compared to shares distributable, shares are distributed by lottery. As a result, small investors also can participate in investment by buying shares. They are indeed the owners of the company. If the company earns profit, it is distributed among them as dividend. The invested money of the shareholders is not refundable. However, if the liquid money is needed, the shareholders can sell these shares in the secondary market (such as: New York Stock Exchange) and if the price is increased there they get profit. Usually, in the cases of profitable companies, shareholders get dividend on regular basis. However, the rate of giving dividends is not pre-fixed. Giving dividend is also not mandatory for the company. If no profit occurs, dividend is not usually given. And even if the company makes profit, total amount of profit is not distributed as dividend. If the company wishes, it can give dividend at any rate, besides it can give no dividend also. But in that case, if the company cannot give dividend to the shareholders, the price of the shares is decreased in the secondary market, which is not good for the company.

Buying shares is a risky investment for the investors. Share issuing companies are not always bound to give dividends to the shareholders. If the company cannot make sufficient profit in any year, no dividend is given to the shareholders that year. Besides, when the company is closed, shares of the general shareholders are met after meeting the dues of the debtors and priority shareholders from the money got by selling the properties of the company. As a result, if there is no money left after paying all dues general shareholders may have the risk of getting no money back for their investment. For these reasons, investment in general shares is considered as the most risky investment. However, as it is a risky investment so there is also possibility of making more profit from such shares. If an investor decides to invest with clear knowledge and good calculations, general shares may have been a good source of investment for him. As a tool of investment, general shares have some special features. Those are described below:

1. General shares provide ownership to the share investors. As a result, as an owner he has the legal rights on its profits earned and its properties.

2. General shares give full authority to its owners to control the company. Shareholders control the company by applying their voting right in taking important decisions.

3. General shares are easily transferable. The investor according to his wish can handover the shares at his ownership at any time.

As a tool of investment general shares have some advantages and disadvantages:

Advantages

More Income: General shares can be a source of good income if an investor invests his money with clear knowledge and good calculations. The income earned by the investor from other tools of investment like priority shares, bonds and debentures is fixed. But income from general shares is not fixed. As a result, when the company earns more, the income of the investors also increases.

Limited Liability: The owners of the general shares jointly bear the risks of the company. The total risks of an investor are at no circumstances bigger than his invested money. For example, suppose an investor has bought 100 shares of a company and the face value of each share was 10 dollar, so his total liabilities may be at best 10 x 100 = 10,000 dollar.

Liquidity: General shares are well considered by the investors as liquid money. The investor according to his wish can collect money at any time by selling the shares at his possession. However, the liquidity of shares of all companies is not equal. Usually, the liquidity of shares of big and good companies is higher than that of other companies.

Disadvantages

Risk: Investment in general shares is comparatively more risky. There are many speculating investors in the share market. As a result, there is risk of doing loss if the investment is not guided by knowledge and good calculations.

Rights in Profit and Property Distribution: In distribution of profits, the company has to pay first all the liabilities payable to the owners of priority shares, bonds and debentures; and the general shareholders have rights on the remaining profits (if any). In this way, when the company is closed, after paying all the liabilities of the company with the money got by selling its properties, the shareholders will distribute among themselves the rest of the money (if any). That is, in both the cases the rights of the owners of priority shares, bonds and debentures get priority over the rights of the general shareholders.

Priority Share

Investment in priority shares is considered a good tool of investment for those investors who expect income at a certain rate from their investment in shares. Like that of general shares priority shares also have some own features and characters:

1. Ownership: Priority shareholders are not told full owners of the company. They are considered in between the owners of general shares and the owners of bonds and debentures.

2. Transformability: For many priority shares alternative options are there to transform them into general shares. So, if the investor wishes, he can change his status to an owner of general shares.

From the perspective of the investors, priority shares have some advantages and disadvantages. The advantages and disadvantages of priority shares are discussed below:

Advantages

1. Income at Certain Rate: The owners of priority shares get dividend at some certain rate. As a result, the shareholders have less uncertainty of income.

2. Priority on Profit Income: While giving dividend, owners of the priority shares get priority over the owners of the general shares.

3. Claims on the Properties: At the time of liquidation or closure of the company, claims of the owners of priority shares are first considered before meeting the claims of the owners of general shares. But of course, their claims are met after fulfilling the claims of the owners of debentures.

Disadvantages

1. Control: The priority shareholders do not have any voting right. So they have no control over the company.

2. Limited Income: Priority shareholders’ rate of income is fixed. Hence, priority shareholders do not get any share of extra profits made by the company.

System of Investment in Shares

Investors can invest in share markets in two ways:

1. Through Primary Market

2. Through Secondary Market.

Primary Market

Primary market means that market where a company announces the initial public offering (IPO) for selling its shares. When a company sells its shares in the market for the first time, that offer for selling is called IPO. If an investor buys shares by participating in the IPO offered by any company, it is considered that he has bought primary shares.

Secondary Market

After selling shares for the first time by a company to the investors, the investors can buy and sell shares among themselves. The market where investors buy and sell shares among themselves is called a secondary market.

Dividend and Dividend Policy

The gains or profit of a company is the deserving income of the shareholders. So, the gains or profit is distributed among the shareholders. Usually, a company does not distribute the full amount of gains or profit among the shareholders. It retains a portion of the gains and profit for financing in the affairs of business in future, and distributes the rest amount among the shareholders. The portion of gains or profit which is distributed among the shareholders is called dividend. A company can give dividend usually in two ways:

1. Cash Dividend

2. Stock Dividend or Bonus Share

Cash Dividend

The dividend which is paid in cash money is called cash dividend. For example: suppose, a company announces 10% cash dividend. An investor holds 500 shares of that company of each share priced 10 dollar. That investor will get 1 x 500 or 500 dollar as cash dividend.

Stock Dividend

Many a time, a company gives stock dividend instead of cash dividend or stock dividend side by side with cash dividend. The company usually gives stock dividend in proportion with shares issued at present. As a result, the number of shares of the company increases. Suppose, a company has at present 10 million shares of face value 10 dollar. The company announces 50% or 2:1 portion of stock dividend. As a result, if an investor has 500 shares at present, after getting the dividend the number of his shares will be 750. In this way, total shares issued by the company will be 15 million.

Dividend Policy

A company has to take dividend-related various decisions every year, for example, what portion of profit will be given as dividend, whether cash dividend or stock dividend will be given, etc. For taking these decisions, every company has particular policy which may give directions to give dividend. These policies are called dividend policies. Usually, three types of dividend policies are found, such as:

1. Fixed Money Dividend Policy: According to this policy, every year equal amount of money is given as dividend. For example, if a company gives 10 dollar dividend per share every year, it will be called fixed dividend policy. Whatever more amount of money a company may earn, it gives same amount of dividend as was given in previous years. However, in this system the amount of dividend usually does not decrease.

2. Dividend Payment Ratio Policy: According to this policy, a company decides what portion of its profit it will give as dividend. As per the decision, every year the company gives dividend proportionately. For example, suppose a company decides to give at 50% proportional rate. As a result, if in one year the company earns 20 million dollar, then it will give the shareholders 20 million x 50% or 10 million dollar as dividend.

3. Fixed Dividend along with Additional Dividend Policy: This is an ideal dividend policy for those companies which have no fixed or regular income. According to this policy, a company gives an additional dividend every year in addition to a minimum fixed dividend. As this dividend policy is much flexible than other dividend policies, many companies adopts this policy.

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