Learning Materials For Accounting, Management , Finance And Economics.

Monday, April 18, 2011

Importance Of Debentures

An issue of debenture plays a great role in long-term planning and decision-making. In modern competitive business era, every company needs fund for any business opportunity. This financing can be fulfilled only by issuing owner's capital and debt capital. The issue of debenture, in one side creates the obligation for the payment of interest at a fixed rate and in another side, it causes an increase in ' earning per share' due to comparatively less number of shares issued. The following points are being produced for its importance:

1. Debentures are important to pay interest expenses by a fixed rate.

2. Debentures are important to meet the requirement of long-term capital budgeting.

3. Debentures help to maximize earning per share.

4. Debentures help to reduce the burden of income tax, since interest is charged against profit and loss account.

5. Debentures provide the way, to use leverage in the capital structure of the company.