Explain five sources of finance that are available to a Public Limited Company.

Answer Details

A Public Limited Company (PLC) is a large joint-stock company that can raise capital from the general public. Its main sources of finance are:

• Ordinary (equity) shares: the company sells ordinary shares to the public; shareholders become part owners and are paid dividends out of profit. This provides permanent capital that need not be repaid.
• Preference shares: shares that carry a fixed rate of dividend paid before ordinary shareholders. They attract investors who want a steadier, more secure return.
• Debentures (loan stock): long-term loans raised from the public on which the company pays a fixed rate of interest whether or not it makes profit; the debenture holders are creditors, not owners.
• Bank loans and overdrafts: medium and short-term borrowing from commercial banks to finance expansion or working capital, repaid with interest.
• Retained (ploughed-back) profits: part of the company's profit that is not distributed as dividend but re-invested in the business, providing a cheap internal source of finance.

Other sources include mortgages on landed property and trade credit from suppliers.