Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
11 Cards in this Set
- Front
- Back
|
Long Term Finance - What are the sources of funds for financing capital projects |
Large cash surplus The capital markets Bank borrowing Government and similar sources In general finance can be raised from Equity or debt sources
|
|
|
How is finance raised from the capital markets? |
New share issues (firm acquiring a stock market listing for the first time) Rights issues Issues of marketable debt
|
|
|
How is finance raised from bank borrowing? |
Long term loans Short term loans, including bank facilities such as revolving credit (RCF) and money market lines.
|
|
|
What is a share |
Fixed identifiable UNIT OF CAPITAL in an entity which normally has a FIXED NOMINAL VALUE, which may be quite different from its market value.
|
|
|
What do shareholders receive in return from their investment in shares |
Dividends, and also capital growth in the share price
|
|
|
Discuss ordinary shares |
Ordinary shares are also called equity shares Pay dividends AT THE DISCRETION OF THE ENTITYS DIRECTORS
|
|
|
Who are the owners of the entity? |
The ORDINARY SHAREHOLDERS of a company are the owners of the company They have the right to attend meetings andVote on any important matters On winding up of a company, the ordinary shareholders are subordinates to all other finance providers
|
|
|
Discuss preference shares |
Pay a fixed dividend Paid in preference to ordinary share dividend On winding up of a company, the preference shareholders are subordinate to all the debt holders and creditors, but receive their payout before ordinary shareholder
|
|
|
Comparison of preference shares with debt and with ordinary shares |
PREFERENCE SHARES pay a fixed proportion of share’s nominal value EACH YEAR as a dividend. Pref share behavior is similar to debt finance (fixed annual returns), while ordinary shares has a variable dividend at the discretion of the directors) Pref shares in paid out of post-tax profits (NO TAX BENEFIT TO THE COMPANY), Interest on finance is paid out of pre-tax profits (TAX RELIEF FOR COMPANY) In certain circumstances when a company will be given permission not to pay its preference share dividends in a year. (insufficient funds to distribute). With debt interest, it is a yearly OBLIGATION, whether or not the company can afford to make the payment. LACK OF TAX RELIEF – Make pref shares are relatively unattractive for companies compare to bank borrowing and other forms of fixed rate security such as bonds. HOWEVER, PREFERENCE SHARES DO APPEAL TO RISK-AVERSE INVESTORS LOOKING FOR A RELATIVELY RELIABLE INCOME STREAM.
|
|
|
List the different types of preference shares |
CUMULATIVE PREFERENCE SHARES NON-CUMULATIVE PREFERENCE SHARES PARTICIPATING PREFERENCE SHARES CONVERTIBLE PREFERENCE SHARES
|
|
|
Discuss the different types of preference shares |
CUMULATIVE PREFERENCE SHARESDividends must be rolled forward if the company is unable to pay the dividendNON-CUMULATIVE PREFERENCE SHARESMissed dividends do not have to paid later. There is no roll forward of dividends.PARTICIPATING PREFERENCE SHARESGives the holder fixed dividends plus extra earnings based on certain conditionsCONVERTIBLE PREFERENCE SHARES / FIXED-INCOME SECURITIESCan be exchanged for a specified number of ordinary shares on some given future date.Steady income stream & protection of investors capitalIn converting, the investor has an opportunity to gain from a rise in the share price.Attractive to investors who want to participate in the rise of hot growth companies while being insulated from a drop-in price should the ordinary share price growth not live expectations SOME PREFERENCES SHARES ARE REDEEMABLE, HOLDERS WILL BE REPAID THEIR CAPITAL (USUALLY AT PAR) A PREDETERMINED FUTURE DATE. |
