FINANCING & DIVIDEND DECISIONS Flashcards
What is financing decision?
It is concerned with decisions as to where to raise funds for the operation of business
The major sources of finance available to an organisation?
- Long term sources
- Short term sources
What is dividend decision?
It is concerned with pay out policies and how those policies can affect the value of shares.
Sources of equity capital?
- Internally generated funds by retaining earnings
- New issue of shares to:
- the public
- existing shareholders
Ways of obtaining a quotation for shares?
- Placement
- Offer for sale at fixed price
- Offer for sale by tender
- Intermediaries
Ways of increasing number shares?
- Scrip/Bonus issue
- Stock/Share split
Reasons for share split?
- Facilitate ease of trade
- Improve liquidity of shares
What is right issue of shares?
It is an offer to existing shareholders to subscribe for more shares in proportion to their existing holding usually at a price lower than the market price.
Differentiate between ex-rights price and rights-on price.
Ex-rights price is the price of shares after a right issue where as RIGHTS-ON PRICE is the price of shares before a rights issue.
Sources of LOAN CAPITAL?
- Debentures
- Preference share
- Long term bank loan
Sources of MEDIM/SHORT TERM LOAN
- Bank overdraft
- Factoring
- Invoice discounting
- Attractive discount offers to debtors
- Higher purchase
- Leasing agreement
- Delaying payment to creditors
- Sale and leaseback agreement
Advantages of DEBT FINANCE?
- Low cost
- Flexibility
- Dilution
Disadvantages of Debt finance
- Securities
- Interest payments
- Payment conditions
- Principal repayment
- Financial distress
Factors to consider when considering source of finance?
Cost
Purpose
Gearing
Flexibility
Control
Size of company
