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Fin Reporting > Financing limited com > Flashcards

Financing limited com Flashcards

1
Q

Có bao nhiêu source of finance?

A

Internal vs external source

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2
Q

Internal sources of finance gồm?

A
  • Long term finance
    Retained profits
  • Short-term finance
    Tight credit control of receivables
    Reducing inventories
    Delaying payments to suppliers
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3
Q

External sources of finance gồm?

A

Capital = the long-term financing of a company
Share capital
Funds are raised by selling shares in the company.
The shareholders are the owners of the company.
Loan capital
Funds are raised by obtaining a loan.
Lenders are not owners but creditors of the com.

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4
Q

Thứ tự rủi ro tăng dần của long-term capital?

A

1/ Loan capital
2/ Preference capital
3/ Ordinary capital

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5
Q

Trong share capital có?

A

Preference capital

Ordinary capital

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6
Q

Đặc điểm của Ordinary capital

A

returns from dividends and increased share value
give voting rights at meetings
irredeemable (ko đổi lại đc)
dividends are at discretion of directors (tuỳ ý)
rank after all other creditors in a winding up
authorised and issued capital
nominal value and market value
variations - eg redeemable, non-voting
high risk/high reward

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7
Q

Đặc điểm của Preference shares

A

fixed dividend
usually no voting rights
usually cumulative and irredeemable (tích luỹ)
risk is less than for ordinary shares but more than for loan capital
Rank ahead of ordinary shares if company is wound up.
Variations:
Participating (right to share of profits over a certain amount)
Convertible (right to convert into ordinary shares in the future)

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8
Q

Đặc điểm của Loan Capital

A
  • return to investor is interest (plus repayment of capital)
  • Pattern of interest and capital payments determined at outset (từ ban đầu)
  • may be listed on stock exchange
  • lenders do not have voting rights
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9
Q

Loan covenants (giao ước) deal with matters such as?

A
  • Dividend payments
  • Access to financial statements
  • Other loans
  • Liquidity.
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10
Q

Debentures là gì?

A

Loans secured on some or all of company’s assets

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11
Q

Debentures có đặc điểm chi?

A
  • Mortgage debenture is secured by a specific asset
  • Floating charge debenture allows company to use assets in trading
  • Risks gồm non-payment, inflation and low marketability
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12
Q

Unsecured loan stocks có đặc điểm chi?

A
  • No specific security for loan
  • Greater risk, reflected in market value
  • May be convertible (right to convert into ordinary shares at a later date)
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13
Q

Eurobond loan capital

A
  • loan capital issued in a currency other than the currency of the country in which it is issued
  • does not come under tax or legal control of any country
  • usually fixed interest payments made annually
  • usually unsecured
  • mostly traded through investment banks
  • used to raise large sums of foreign currency– usually $75m or more
  • may obtain a lower rate of interest than available domestically, but exchange rate risks
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14
Q

Medium term company finance

A

Hire purchase

  • initial rental period, then purchase at the end of the period
  • ownership passes on final payment
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15
Q

Hire purchase agreements often involve three parties

A

Supplier, customer, financial institution

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16
Q

Leasing là gì?

A

asset is ‘rented’ for a period

ownership does not transfer to lessee

17
Q

Leasing gồm?

A 
- Finance leases
Lessee takes on risks of ownership (repair costs 
/insurance)
- Operating leases
Owner of asset retains risks
18
Q

Credit purchase là chi?

A
  • Company purchases an item, and agrees to make payment in instalments (trả góp)
  • Ownership passes immediately to purchaser
19
Q

Bank Loans là chi?

A
  • interest payments
  • usually secured
  • repaid at end of term
20
Q

Short term company finance gồm ?

A

immediate payment can be demanded
interest payable on overdrawn amount only

an agreement between a company and suppliers to pay later
no interest normally charged (may give discount for paying on time)

21
Q

Factoring là gồm?

A

company sells its accounts receivable to a factor
factor takes on responsibility for collection

loan secured against outstanding invoices
credit risk remains with the original seller

22
Q

Đặc điểm của Commercial paper?

A
  • bearer documents for large denominations, (minimum size £500,000) issued at a discount and redeemed at par (face value)
  • Fixed maturity date of between 1 and 270 days
  • Used to meet short-term debt obligations
  • No security offered, so can only be used by companies with excellent credit rating
  • not listed on stock exchange, but issuing companies must be listed
23
Q

Bills of exchange là chi?

A
  • A sells goods to B
  • A asks B to sign a bill of exchange, to confirm that B will pay A (or anyone nominated by A) on the day the debt becomes payable.
  • A can then sell the bill to C, thereby getting immediate payment (although at a discount)
  • C can sell on to D and so on until eventually someone presents it to B for payment
24
Q

Payment ranking when a company is wound up?

A 
1/ Fixed charge creditors
2/ Floating charge creditors
3/ Preferential Creditors
     Include employees’ claims for arrears of wages, holiday pay and pension payments (limited by law)
    Also any unpaid taxes 
4/ Unsecured creditors
    This includes trade payables 
5/ Connected creditors
Loans or unpaid salary for directors and their spouses and close family
6/ Preference Shareholders
7/ Ordinary shareholders
25
Q

Obtaining a stock exchange quotation có ads gì?

A
  • raise capital now
  • easier to raise capital in the future
  • provide an exit route for existing shareholders
  • improve marketability of shares
26
Q

Obtaining a stock exchange quotation có disads gì?

A
  • expensive
  • extra disclosure requirements
  • investor pressure
  • rules on insider dealing
27
Q

Routes to listing là chi?

A

Offer for sale at a fixed price

  • most common method
  • predetermined number of shares offered to the public at a specified price
  • shares sold first to an issuing house, which then sells to public (underwriting)
  • issuing houses usually part of an investment bank
28
Q

Process of an offer for sale ?

A
  • issuing house advises on price of shares
  • prospectus issued to public containing detailed information on company (Financial position, Activities ,Reason for listing, People)
  • applications to buy shares received from the public
    usually, issues are oversubscribed, so must be scaled down
  • letters of acceptance, refund cheques and share certificates issued
  • Shares are then tradable on the Stock Exchange
29
Q

Offer for sale by tender?

A

Issuing house asks for offers from public, stating

  • how many shares they will buy
  • how much they will pay

After offer closes, issuing house determines ‘strike price’

  • strike price chosen to ensure all shares sold
  • all applicants who bid at least as much as the strike price are accepted
  • all applicants pay the strike price (even if bid was higher)
30
Q

Other methods of obtaining a listing?

A

similar to offers for sale
normally at a fixed price
the whole issue is not underwritten
company sells shares directly to the public
issuing company bears risk of undersubscription

cheaper, simpler method of making small issues
issuing house first buys shares from company, then sells directly to institutional investors
public are not involved

does not involve the sale of any shares
existing shares become quoted on stock exchange
used where shares are already widely held
aim is not immediate fundraising, but increased share marketability

31
Q

Underwriting là chi? (dịch vụ bảo lãnh)

A
  • always used for an offer for sale, often used for other share issues
  • avoids risk of not selling all shares
  • company sells shares at agreed price to issuing house
  • issuing house gets a fee, or % of value of shares
  • issuing house may arrange sub-underwriting to spread risk
  • issuing houses take care not to overprice issues, so they are successful
  • main risk is unexpected event between agreeing to accept the underwriting and the closing date for the offer for sale
32
Q

Rights issues là chi?

A
  • Required to maintain existing shareholders’ proportions of shares
  • If a company has 1m shares in issue, then issues a further 1m shares, a shareholder owning 25% of the company will end up owning only 12.5%
  • Must offer new shares to existing shareholders first
  • Price is at a discount to market value
  • Price cannot be below nominal value
  • Main purpose is to raise money
  • Share price will fall after issue, depending on the extent of the discount and number of new shares
  • Shareholders can decide not to exercise their rights, which can then be sold.

Fin Reporting (11 decks)

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