EQUITY

Question 1

Private Equity

Answer 1

DEFINITION:
Businesses invite individuals/organisations to invest
INFO:
Must be incorporated and relates to PRIVATE companies
Shareholders do not need to be paid dividends
PROS: leverage is less; gearing ratio improves
CONS: Ownership is diluted; original owners have less control

Question 2

Public Equity (New Shares)

Answer 2

DEFINITION:
Shares are sold for the first time on the ASX
INFO:
This is the only time the business actually receives capital
PROS: Injects larges sums of capital into business
CONS: Ownership is diluted; Can never make a profit of shares once sold to the public

Question 3

Public Equity (Rights Issues)

Answer 3

DEFINITION:
Privilege granted to current shareholders to purchase more stock in the same company
INFO:
Shareholders can accept, reject or transfer the rights issue
PROS: Injects capital
CONS: control of company may shift to other majority shareholder(s); option for large shareholders to acquire a majority

Question 4

Public Equity (Placements)

Answer 4

DEFINITION:
Offering of shares to specific investors
INFO:
Capital raised can be used for rapid takeovers or expansion
PROS: Large amounts of capital can be raised; capital raised
CONS: No brokerage fee for shareholders