Module 7 Capital Requirements

Question 1

Why might a business need finance?

Answer 1

1) R&D
2) Set up costs
3) Marketing
4) Expansion

Question 2

What are the Long term sources of finance?

Answer 2

1) Ordinary share capital
2) Preference share capital
3) Bonds

Question 3

What is ordinary share capital?

Answer 3

Represent permanent capital for a business and shareholders are owners’ with entitlement to dividends and voting rights

Question 4

What are ways a company can issue ordinary share capital?

Answer 4

1) offer for sale
2) Offer for subscription
3) Placing
4) Rights to issue
5) Crowdfunding

Question 5

What are the advantages to a business of issuing share capital?

Answer 5

-Permanent capital
- Flexible returns

Question 6

What are the disadvantages to a business of issuing share capital?

Answer 6

• Loss of control
• High costs
• Non tax deductible

Question 7

What is preference share capital?

Answer 7

Are part of the shareholders funds. They don’t grant voting rights and typically offer fixed dividends.

Question 8

What are the advantages of preference share capital to a business?

Answer 8

• Lack of Diluting (no voting rights attached)
• No loss of control
• Dividend Flexibility

Question 9

What are the disadvantages of preference share capital to a business?

Answer 9

• Dividends may be omitted or deffered
• High costs

Question 10

What are Bonds?

Answer 10

Bonds are a way for a company to raise finance by borrowing, but without going through a bank.

Question 11

What are the advantages of issuing a bond?

Answer 11

1) Cost - it is cheaper to issue debt capital than equity capital, and the ongoing cost is also lower.

2) Tax deductible - Interest payments reduce the taxable profits of the business whereas dividends do not.

Question 12

What are the disadvantages of issuing a bond?

Answer 12

1) Security - bond creditors may have a claim on some of the assets of the company if the company does not comply with the terms of the bond.

2) Lack of flexibility - Interest and redemption amounts need to be paid

Question 13

What are medium term sources of finance?

Answer 13

1) Term Loans
2) Hire purchase
3) Lease contracts
4) Venture capital
5) Business Angels

Question 14

What are 2 examples of short term fiancing?

Answer 14

1) Overdraft

2) Factoring

Question 15

What is Sustainable Development Goals (SDGs)?

Answer 15

Universal call to action to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity by 2030.

These 17 goals demand global cooperation to respond to crises while ensuring fairness

Question 16

What is ESG integration?

Answer 16

Combining ESG factors into financial analysis, e.g., emissions, labour practices,
diversity, and more

Question 17

What is negative screening?

Answer 17

Avoid harmful investments, like tobacco, fossil fuels or human rights violators

Question 18

What is shareholder engagement?

Answer 18

Influence companies through dialogue, voting and advocacy

Question 19

What is positive screening?

Answer 19

Select ESG friendly investments, such as renewable energy or education

Question 20

What is sustainability themed investing?

Answer 20

Focus on themes for social and environmental impact

Question 21

What is Impact Investing?

Answer 21

Invest for measurable social and environmental good, alongside financial returns

Question 22

Several common sustainable finance instruments include:

Answer 22

• Green bonds
• Green loans
• Social bonds
• Sustainability -linked bonds
• Sustainability development goal bonds
• Green and sustainable funds

Question 23

Joining a stock exchange can bring considerable benefits to the company:

Answer 23

1) Raising finance
2) Enhanced status
3) Higher Profile
4) Exit route

Question 24

What disadvantages are there by joining an exchange?

Answer 24

1) Cost
2) Public Scrutiny
3) Dilution
4) Ongoing Responsibilities

Question 25

Companies on the Main Market can choose from different market segments:

Answer 25

1) Premium Listing
2) Standard Listing
3) High Growth Segment
4) Specialist Fund Segment

Question 26

Listing requirements for Main market (premium listing):

Answer 26

Advisor : Sponsor on admission
Min shares held by public: 10%
Min market capitalisation of equity issue: £30m
Audited financial info: 3 years

Question 27

Listing requirements for Main market (standard listing):

Answer 27

Min shares held by public: 10%
Min market capitalisation of equity issue: £30m
Audited financial info: 3 years (or less if been in operation for less than 3)

Question 28

Listing requirements for Alternative Investment Market:

Answer 28

Advisor : NOMAD at all times

Question 29

For FCA Official list admission, the company must be:

Answer 29

• A public limited company
• Have published accounts for the last 3 years
• Be revenue generating with sufficient working capital for 12 months

Question 30

What does a prospectus contain?

Answer 30

• Responsible parties details
• Issuer info
• Industry and geographic segment analysis
• Financial statements
• Management and governance details
• Trend information
• Related party transactions