Please enable JavaScript.
Coggle requires JavaScript to display documents.
long term financing & the capital markets - Coggle Diagram
long term financing & the capital markets
different sources of funds
retained earnings
capital markets
new share issues
rights issues
issues of loan capital
bank borrowings
government sources e.g grants
venture capital
for new ventures which can carry high level of risk for investors
international $ & capital markets
capital markets
stock exchange
Alternative Investment Market
ways to obtain
raising share capital through issuing ordinary share capital to invite investors to take an equity stake in the business
raising loan capital in the form of mortgage/loan notes
primary & secondary markets
primary- enable org to
raise
finance. a company must have a public company status to raise finance from the public. easier for companies to raise new long term finance
secondary- enable existing investors to
sell
their investments on the Stock Exchange
take over another company by issuing shares to finance the takeover. only feasible if shares can be readily traded on stock market
investors
providers of capital
institutional investors
pension funds
a separate legal entity
consist of pool of assets
individuals pay pension contributions to the fund
aim is for the assets to grow
usually withdrawn upon retirement
insurance companies
invest premiums paid on insurance policies by policy holders
they invest the money to earn returns
investment trusts
invest in stocks & shares of other companies (trade in)
unit trusts
offers holder opportunity to diversify investments
the trust creates a larger number of small units of low nominal value--sell it to individual investors
venture capital
organisations that specialise in
raising funds for new business ventures
capital markets summary
supplier of funds --> intermediaries --> demand
equity-ordinary shares
securities-any sort of investment that can be bought & sold in the financial markets
loan stock/notes-amounts loaned to a company
bonds-very large loans which normally have a fixed rate of interest
eurobonds-bonds bought & sold internationally
choosing the financial method
establish whether it needs short/long term capital
short term-taking longer payments from suppliers
short term loan
bigger overdraft facility
long term-issue more share capital or loans
why are large public companies in a better position to raise capital?
high standing makes investors more willing to offer finance
well established machinery for raising capital for companies quoted on the SE
limited liability makes larger companies more willing to want to raise capital
factors in the choice of financing method
purpose of finance
amount of finance
repayment of finance
terms of finance
cost of finance
security
restrictive covenants
tax
ctrl of business
effect on gearing