1 / 15

Financing

Financing. Financing. Equity financing Debt financing. Equity financing: owned. Stocks: Claims on assets Part ownership Common stock Preferred stock. Common Stocks. With voting rights Last to get paid in the event of bankruptcy, after preferred stocks, bonds, creditors, etc.

giacomo-allen
Télécharger la présentation

Financing

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financing

  2. Financing • Equity financing • Debt financing

  3. Equity financing: owned • Stocks: • Claims on assets • Part ownership • Common stock • Preferred stock

  4. Common Stocks • With voting rights • Last to get paid in the event of bankruptcy, after preferred stocks, bonds, creditors, etc. • Preemptive rights: retain proportional ownership • Potential earnings in terms of dividends and capital appreciation • Par value: face value, to be retained • Market value: price in the market • Book value: owners equity / shares

  5. Preferred Stocks • fixed dividend rate • No voting rights • Priority over common stocks in payment of dividends and upon liquidation (after debt holders) • Prior Preferred stock: highest priority; lower yield • Preference preferred stock: ranked by seniority • Convertible preferred stock: exchange for common stock • Participating preferred stock: opportunity for extra dividend

  6. Equity Financing • Less risky in terms of cash flow • Dilution of ownership, control and earnings • Higher cost than debt

  7. Venture Capital: private equity • For early-stage, high potential growth companies • Cash for share • High tech industries (biotech / ICT) • From institutional investors and high net worth individuals pooled by investment firms • Core skill: ability to identify novel technologies with high commercial return potential

  8. Venture Capitalist • A person or investment firm • Adding capital, managerial skills and technical expertise for high returns • Pooled investment of capital from third party • For projects that are too risky for standard capital markets or bank loans • Most attractive for new, small, high potential, innovative, rapid growth, business model, management team • Significant control, significant portion of ownership, significant share of value

  9. Debt Financing: owed • Bonds • Loans

  10. Bonds: IOU • Promise to pay by a future date, with interests paid regularly • Rated default risks • Government bonds • Municipal bonds • Corporate bonds • Registered bond: checks mailed out based on registration with company • Bearer bond: payment on coupons • Secured bond: backed by assets • Debenture: unsecured

  11. Other Classifications • Fixed rate bonds: (coupon) constant through life • Floating rate notes: (coupon) floating with interest rate • Zero coupon bonds: no regular interest payment • Inflation (equity – income - GDP) linked bonds: • Perpetual bonds: annuities • Asset-backed securities (mortgage, collateralized mortgage, collateralized debt): • Lottery bond: random redemption • Serial bond: maturity in installments • Revenue bond: only pay back with revenue generated

  12. Loans • Secured: assets as collateral • Mortgage • Auto • Unsecured: monetary loans not backed by assets • Credit card • Personal • Bank overdraft • Line of credit • Demand loans: short term, no fixed dates for repayment, floating interest rate

  13. Financing Decision: debt vs. equity • Pecking Order Theory: • avoid external financing when there is internal financing available • Avoid new equity financing when there is debt financing available at reasonably low interest rate • Trade-Off Theory: • Tax benefit of debt • Bankruptcy costs of debt • Market Timing Hypothesis: • Look for cheaper financing regardless of current capital structure

  14. Securities Markets • Securities: stocks and bonds • Primary market: for new stocks and bonds • Private placements: sold privately, not in open market • Secondary market: for existing securities • NYSE, …

  15. T6: Financing Needs and Plan • Based on your operations, identify the needs for funds and needs for financing • Determine the financing methods and amount to meet the needs • Explain your choice Upload to moodle by 12/26/2010

More Related