Technical Based Questions

Question 1

What is ECM?

Answer 1

ECM Helps Companies Raise Equity Capital

Consists of the primary market and the secondary market

Question 2

What is the primary market?

Answer 2

The primary equity market is where companies issue new securities.

It is divided into the primary public market and the private placement market

Question 3

What is the primary public market?

Answer 3

Private companies go public through IPOs, and listed companies can issue new equity though seasoned issues

Question 4

What is the private placement market?

Answer 4

In the private placement market, companies raise private equity through unquoted shares that are sold to investors directly

Question 5

What is the Secondary Equity Market?

Answer 5

The secondary equity market is what most people think of as the “stock market”

It is where all existing securities are traded

Question 6

What is Capital?

Answer 6

Capital refers to the company’s assets

Capital focuses on the financial resources available to conduct daily business operations

Question 7

What are the 4 main ways to raise funds in the capital market?

Answer 7

1) Equity shares / Ordinary Stock
2) Bonds
3) Preference shares
4) Debentures

Question 8

What is equity?

Answer 8

Equity refers to the owners share of assets of a business

Equity = Total Assets - Total Liabilities

Question 9

What are the factors impacting equity? (4)

Answer 9

1) Retained Earnings
2) Treasury Shares
3) Net Income
4) Dividend Payments

Question 10

What are the advantages of raising capital in the ECM?

Answer 10

1) Lower debt-to-equity ratio
2) More flexible
3) Compares to debt capital, there is less liability in the case that business fails
4) Attracts and retains better management and skilled employees

Question 11

Disadvantages of raising capital through the ECM? (5)

Answer 11

1) Expensive and time consuming
2) More scrutiny
3) Fewer tax benefits (Compared to debt)
4) Share price fluctuations can become distracting to management
5) Required to disclose more information

Question 12

Types of Equity Capital (2)

Answer 12

1) Private Equity
2) Publicly Traded

Question 13

What is an IPO?

Answer 13

Initial Public Offering

An IPO is the process of offering shares of a private corporation to the public in a new share issuance for the first time

Question 14

Name two IPO alternatives

Answer 14

1) Direct listing
2) Dutch Auction

Question 15

What is an direct listing?

Answer 15

An IPO conducted without underwriters

Hence making it more risky

Question 16

What is a Dutch Auction

Answer 16

An alternative to an IPO

Where the IPO price is not set

Question 17

Tell me about discounted cash flow

Answer 17

DCF = NPV / Discount rate

Accept is the DCF > Cost of Investment

Question 18

how is the discount rate calculated?

Answer 18

Using the WACC

WACC = (EquityCost of Equity) + [(% of capital that is debt)(1-tax)]

Question 19

What is the Net Present Value

Answer 19

NPV is the discounted cash flow or EBIT of a company

NPV = Net cash flow / (1+i)^t

i = initial investment

Question 20

What are the advantages of NPV ?(4)

Answer 20

1) Considers the time value of money
2) Easy to calculate
3) Considers the cash flows of the project
4) Gives a ranking in accordance with NPV

Question 21

What are the disadvantageous of NPV? (4)

Answer 21

1) Focuses on short term projects
2) Some costs can’t be estimated or are difficult to estimate
3) Not possible to compare different size projects
4) Difficulty estimating the required rate of return

Question 22

What is the IRR?

Answer 22

Internal Rate of Return

The discount rate that makes the NPV Zero

Question 23

Name different types of M&A (6)

Answer 23

1) Mergers
2) Acquisitions
3) Consolidations (Created a new company by combination)
4) Tender offers (Bypass the board of directors, offer to acquire the outstanding stock)
5) Acquisition of assets (Typically in bankruptcy)
6) Management led buyout

Question 24

name 3 types of mergers

Answer 24

1) Horizontal Merger
2) Vertical Merger
3) Congeneric Merger

Question 25

What is a horizontal merger?

Answer 25

Two companies in direct competition

Question 26

What is a vertical merger?

Answer 26

Supplier purchased

Question 27

What is a congeneric merger

Answer 27

E.g. TV and Cabal company

Question 28

Valuation of M&A (4)

Answer 28

1) P/E Ratio
2) EV / Share
3) DCF
4) Replacement Cost

Question 29

What is the ASQE

Answer 29

Aquis Stick Exchange

Consists of the ASQE main market and the ASQE Growth market

Similar to the AIM

Question 30

Why would companies choose to list on the AIM / ASQE over the Main Market?

Answer 30

More beneficial for early stage, entrepreneurial companies:

1) Provides companies with access to both institutional and retail investors

2) Lower Estimated cost of entry

3) More lenient admission requirements

4) Less onerous continuing obligations

Question 31

What is the duel track process?

Answer 31

Gives a company the optionality to simultaneously access and IPO, a trade sale/PE transaction, selecting the exit option at a later stage

Triple track process also add debt funding as a third growth funding alternative

Question 32

What aspects on the IPO would there be advice? (5)

Answer 32

1) Transaction tax
2) Equity Reward
3) Restructuring
4) Carve-out
5) Governance advice

Question 33

What is IPO readiness? (8)

Answer 33

Prepping the business on a wide range of areas

1) Framing the market opportunity and equity story
2) Modelling the financial track record trends
3) Business Risks
4) Expected growth drivers
5) assessing historic financial information
6) Corporate tax structure
7) Cyber Security Environment
8) Potential Corporate Governance Framework

Question 34

Three things to consider before going Public

Answer 34

1) Having a clear reason for going public

2) Know what the transaction involves

3) Prep, Prep, Prep

Question 35

What should companies consider for reasons to go public? (4)

Answer 35

1) What impact they want it to have

2) Will it help the business achieve its objectives in the short, medium and long term?

3) What are the objectives of existing shareholders?

4) Will an IPO maximise business value compared with a trade sale or private equity investment?

Question 36

What could companies consider for “know what the transaction involves” as something to consider before going public (2)

Answer 36

1) How is the business performing and how would performance be enhanced should the company go public?

2) Are the board, management and shareholders ready for the time commitment and investment involved in the IPO process?

Question 37

What does “prep, prep, prep” mean for a consideration before going public? (5)

Answer 37

1) Understand and articulate the equity story and market positioning

2) Establish a strong, balanced board with a range of experience

3) Plan resource for IPO process management

4) Consider strategic and practical aspects of timing for the IPO

5) Realign staff incentives to deliver IPO objectives

Question 38

How does GT help to IPO readiness? (4)

Answer 38

1) Float Room
2) IPO readiness report
3) IPO Readiness Implementation
4) IPO Transaction

Question 39

What is a Float room?

Answer 39

A one-day workshop with management attended by subject matter experts from across our service lines

Discussion of the company’s:

1) equity story
2) historical and projected financial performance
3) existing financial control
4) valuation aspirations
5) board and senior management structure
6) Corporate governance,

Question 40

What is the IPO Readiness Report?

Answer 40

A report detailing a comprehensive analysis of current readiness together with a tailored steps plan to achieving full readiness

Question 41

What is IPO Readiness Implementation?

Answer 41

implementation of the plan set out in the IPO readiness report to achieve full readiness

Question 42

What are GT’s core offering for IPO Readiness? (8)

Answer 42

1) Framing the market opportunity and equity story and exploring the choice of and ability to access equity capital markets

2) Identifying and modelling financial track record trends, business risks and expected growth drivers

3) Assessing the suitability of historic financial information and financial reporting

4) Considering the adequacy of your financial position and prospects procedures for a listed environment

5) Understanding your valuation and pricing expectation

6) Assessing and subsequently developing a public company-ready corporate governance framework

7) Reviewing your cyber security environment

8) Reviewing your corporate/tax structure

Question 43

What is NPV?

Answer 43

• NPV looks at the cash flow of a company.
• It’s a value that represents the difference between how much cash is flowing into a company and how much cash is flowing out.

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