Module 7 Capital Requirements Flashcards
Why might a business need finance?
1) R&D
2) Set up costs
3) Marketing
4) Expansion
What are the Long term sources of finance?
1) Ordinary share capital
2) Preference share capital
3) Bonds
What is ordinary share capital?
Represent permanent capital for a business and shareholders are owners’ with entitlement to dividends and voting rights
What are ways a company can issue ordinary share capital?
1) offer for sale
2) Offer for subscription
3) Placing
4) Rights to issue
5) Crowdfunding
What are the advantages to a business of issuing share capital?
-Permanent capital
- Flexible returns
What are the disadvantages to a business of issuing share capital?
- Loss of control
- High costs
- Non tax deductible
What is preference share capital?
Are part of the shareholders funds. They don’t grant voting rights and typically offer fixed dividends.
What are the advantages of preference share capital to a business?
- Lack of Diluting (no voting rights attached)
- No loss of control
- Dividend Flexibility
What are the disadvantages of preference share capital to a business?
- Dividends may be omitted or deffered
- High costs
What are Bonds?
Bonds are a way for a company to raise finance by borrowing, but without going through a bank.
What are the advantages of issuing a bond?
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.
What are the disadvantages of issuing a bond?
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
What are medium term sources of finance?
1) Term Loans
2) Hire purchase
3) Lease contracts
4) Venture capital
5) Business Angels
What are 2 examples of short term fiancing?
1) Overdraft
2) Factoring
What is Sustainable Development Goals (SDGs)?
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
What is ESG integration?
Combining ESG factors into financial analysis, e.g., emissions, labour practices,
diversity, and more
What is negative screening?
Avoid harmful investments, like tobacco, fossil fuels or human rights violators
What is shareholder engagement?
Influence companies through dialogue, voting and advocacy
What is positive screening?
Select ESG friendly investments, such as renewable energy or education
What is sustainability themed investing?
Focus on themes for social and environmental impact
What is Impact Investing?
Invest for measurable social and environmental good, alongside financial returns
Several common sustainable finance instruments include:
- Green bonds
- Green loans
- Social bonds
- Sustainability -linked bonds
- Sustainability development goal bonds
- Green and sustainable funds
Joining a stock exchange can bring considerable benefits to the company:
1) Raising finance
2) Enhanced status
3) Higher Profile
4) Exit route
What disadvantages are there by joining an exchange?
1) Cost
2) Public Scrutiny
3) Dilution
4) Ongoing Responsibilities