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Finance - Coggle Diagram
Finance
Types
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Debt factoring :check:
Receivables account is sold to a 3rd party at a discount, reducing credit exposure and improving cash flow
Recourse (where the factoring house can come back to the organisation in event of non-payment
Non-recourse (where debtor is completely transferred - fees are higher)
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Bank facilities :check:
Types
Syndicated - Number of banks have a share in a facility - sharing the credit risk. One bank will be the 'arranger', inviting other banks in to the deal.
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NOTES: Interest charged linked to prevailing 3mth money market rate (3mth LIBOR). Banks will then add a margin (e.g. 250 basis points – a basis point is one-hundredth of 1% – or 2.5%) This rate is known as the 'Drawn Fee'.
Facilities need to be 'COMMITTED'. Meaning funds can be drawn down when required. Uncommuted means the bank could say no, if circumstances require it. If COMMITTED, there would be a 'commitment fee' effectively meaning the borrower is paying for the right to borrow when required
Leasing :check:
Assets owned by a 'bank' and the lessee pays to lease them.
2 types -
Finance leases - Legal ownership remains with lessor (the bank) with the benefits and risks being transferred to lessee (hire purchase)
Operating leases - Short-term arrangements - Lessor retains risks and benefits, effectively borrowing the asset and making rental payments (van rental)
Equity finance :check:
Ordinary shares
Shareholder ownership in company. Entitled to share of profits. Have voting rights but no automatic entitlement to dividends. Comes behind Preference Shares
Preference shares
Gives shareholders ownership of company. Rate of dividend is fixed. Payable before dividends for ordinary shares. Voting rights only on major issues.
Share warrants
Options that give the holder the right, but not the obligation, of exercise to obtain shares at a defines price (strike price)
NOTES: Nominal value - Face value of a security. Commonly expressed as £100 or £1000. Minimum price a share can be issued.
Also research 'share premium' and 'market value'
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LIBOR - London Interbank Offering Rate - Rate at which up to 18 leading banks are prepared to lend money to each other for defined periods. Calculated each day by Thomas Reuters once the banks have submitted their cost of borrowing unsecured funds for 15 time periods, up to the period of 12 months, in 10 currencies. The rate is the trimmed average once the lowest and highest 25% of quotes have been discarded