Chapter 1 - Types and sources of long term funds Flashcards
What is an Ordinary Share?
- Dividends paid at discretion.
- Have a par value
- Share of assets remaining after liquidation
-More expensive than debt - Shareholders have a right to attend meetings and have voting rights.
- Presented as equity in the issuing company statement of financial position
What is a Preference Share?
-Have a par value
- No voting rights
- Dividend normally fixed
- On liquidation, receive a share of remaining assets before ordinary shareholder
-Cumulative or non cumaltive
-Present as liability if redeemable and/or cumulative
Present as equity if irredeemable and non-cumulative
What is a Cumulative Preference Share?
Shareholders have a right to attend meetings and have voting rights.
Paid a fixed dividend.
The dividend will accumulate or roll forward if not paid in the period in which it is due.
What is a Non-cumulative Preference Share?
Shareholders have a right to attend meetings and have voting rights.
Paid a fixed dividend.
The dividend will NOT accumulate or roll forward if not paid in the period in which it is due.
What is a Participatory Preference Share?
Shareholders have a right to attend meetings and have voting rights.
Paid a fixed dividend plus additional extra dividends based on extra conditions such as financial ratios or targets being met.
What is a Convertible Preference Share?
Shareholders have an option to exchange preference shares for ordinary at a future date.
What are the functions of the Capital Market?
Primary: Enable firms to raise finance.
Secondary: Buy and Sell of Shares.
What are the pros and cons of being listed on a stock exchange?
PROS:
Accurate Valuation
Buy/Sell of shares
Raise Profile
Raise Capital
Employee Share Scheme
CONS:
Costly
Possible loss of control
Onerous reporting requirements
Stringent Stock Exchange Rules
Who are the Role players and their functions in Long Term Finance?
STOCKBROKERS: Methods to obtain listing
INSTITUTIONAL INVESTORS: Buy shares, acceptable share price, major influence
REGISTRARS: Admin, collect & process apps, monitor payments, advice/info re: share issue
PR & INVESTOR RELATIONS: Transparent Comms, understand, inform and improve uptake
REPORTING ACCOUNTANTS: Impact on AFS
UNDERWRITERS: Take on risk iro new share issue, promotion to 3rd parties
What is an IPO?
An Initial Public Offering is the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors
What is a Rights Issue?
New shares are offered to existing shareholders first to prevent dilution of their shareholding. They have the option to buy new shares at a lesser price while maintaining voting rights.
This method is a cheap and simple way to raise finance, are mostly successful and leads to favourable PR.
Rights issues can be waived with consent of the shareholders.
What are the main sources of Long Term Finance other than shares?
Debt Finance:
Security Charges (fixed or floating)
Covenants (restrict actions or specific targets)
Moneymarket
Bonds
Revolving Credit Facilities
What are the other possible sources of Long Term Finance?
Other Sources:
Retained Earnings
Sale & Leaseback
Debts with warrants
Convertible Debt
Venture Capital
Business Angels
Bookrunner
The main underwriter of a group of underwrites for new share and debt issues. It is usually a financial institution, such as an investment bank.
