Source of Finance Equity (OT) Flashcards
What determines how we raise money?
Whether company is quoted or unquoted
If company is quoted ways of raising finance?
Public issue
WHat is public issue?
Anyone can buythe shares
Public issue characteristics?
Fixed price
Public issue by tender example?
No fixed price, investor puts how much they want to pay. Then price is determined by company through comparing multiple offers
What is a rights issue?
Cheaper than public issue. Offer of new shares to existing shareholders. Not for general public
Characteristics of rights issue?
Must be offered to all the shareholders in a fair way
What is meant by a 1 to 4 rights issue?
1 new share for every 4 existing shares
Issue with little company?
Is difficult to find new shareholders. Likely to do a rights issue instead
An unquoted company vs quoted company?
Unquoted is much harder to raise finance
Companies on stock exchange?
Just big companies
Help small companies becone big?
Alternative investment market. Grow to become big enough for the stock exchange
Why is share price usually higher than TERP?
Shareholders hope ivnestments are going well
A letter in a quoted company?
Can be sold to someone else who then buys the letter
The value of rights per new share calculation?
TERP - cost of taking up rights
The value of rights per existing share calculation?
Value of rights per new share / existing shares in rights price
What is the bonus issue?
Not a source of finance as it is an issue of free shares to existing shareholders
Why use bonus issue?
When share price gets high, can be used to reduce the price to make it more marketable
What is stock split?
Not a source of finance. Withdraw shares and then replace with more shares at a cheaper price
What is a scrip dividend?
Shareholders are offered shares instead of a cash dividend
How is a dividend paid?
In cash
Is a scrip dividend a source of finance?
Yes as shareholders are offered shares but have the option to change in the future
Profits earned by the company belong to who?
The shareholders
Retained earnings are used for?
Investing and expanding the company
What is the clientel effect?
When people deciide which company to buy shares in, some people are more concerned with large dividends even if company has no growth due to high dividends
Whilst others prefer a company that retains a lot with less dividend
What is the signally effect?
Company has paid the same dividend for years but one year company pays no dividend. May be unexpected shock to sharehodlers
