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OVERVIEW FINANCIAL MARKET (2) - PT. 2 - Coggle Diagram
OVERVIEW FINANCIAL MARKET (2) - PT. 2
ORDINARY SHARES
NEW SHARE ISSUES
Purpose: To raise cash
Sells new shares to existing shareholder - RIGHTS ISSUES
New share<existing and sell to new shareholder
RIGHTS ISSUES
Advantages
Cheaper than offers for sale to general public
More beneficial to existing shareholder
Relative voting rights are unaffected
Reduce gearing, Increase share capital
TIME AND COST OF NEW EQUITY ISSUES
High price - high investors' confidence
Issuing shares at high price - reduce no of shares it must issues
Total dividend commitment will be lower
SCRIP DIVIDEND
Takes in form of new shares instead of cash
Converts profits and loss reserves into issued shared capital
SCRIP ISSUES
Also known as bonus issue
Does not raise new funds
Making shares cheaper, easily marketable in Stock Exchange
STOCK SPLITS
Ordinary share $1 split into 50c
Creating cheaper share with greater marketability
PREFERENCE SHARES
Types
NON-CUMULATIVE
Fixed rated of dividends
Receives dividend in priority to ordinary shareholders
CUMULATIVE
Unpaid dividend is carried forward to later years when company is profitable
Cumulative preference share must be paid before any dividend paid to ordinary share
PARTICIPATING
Can choose btwn fixed preference dividend/ordinary dividend whichever higher
REDEEMABLE
Company will buy it back in future
Redemption date is usually agreed
CONVERTIBLE
Have rights to convert this share into ordinary share
LOAN NOTES
Long-term debt capital raised by a company which interest paid at fixed rate
LOAN NOTES WITH FLOATING RATE INTEREST
Protect borrower from have to pay high rate of interest
Market value depend on the coupon rate of interest
DEEP DISCOUNT BOND
Issued at price which is at large discount to their nominal value
ZERO COUPON BOND
Issued at discount to their redemption value
No ineret paid on them
Investor gains from difference btwn issue price and redemption value
SECURITY
FIXED CHARGE: Related to specific asset or group of assets, unable to dispose asset without substitute or lender's consent
FLOATING CHARGE: On certain assets of the company, dispose of its assets as it chose until a default took place
UNSECURED LOAN NOTES
Expect higher yield, compensate them with higher risk
CONVERTIBLE LOAN NOTES
Fixed return securities, pre-determined date
Conversion value will be below the value of notes at date of issue but expected to increase
Issued at greatest possible conversion premium
Issue lowest no of new ordinary shares
Issued at nominal value
Lower coupon rate of interest
Traded at min market price and will be price of straight loan notes
WARRANTS
Right given by company to an investor, allow them to subscribe new shares in future at fixed and pre-determined price
Package with unsecured loan notes
Purpose: Make warrants loan notes more attractive
Detachable from notes
Can be sold and bought separately or during exercised period
Capital gain: Increase in value of investment