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CHAPTER 9: SOURCE OF FINANCE - Coggle Diagram
CHAPTER 9: SOURCE OF FINANCE
Short-term finance
Over draft
Amount:
The bank grants for borrower
an overdraft limit with reference to borrower's known income
offer a
level of flexibility with amount borrowed at any time
bank will charge
a commitment fee
at the time granting overdraft facility
Mirgin:
Interest is charged @ bank's administrative base rate plus a margin
charged to borrower's bank acc monthly/quarterly
rate > rate of bank loan
additional fee for arranging larger-size overdraft facility
interest will be paid only when the account is overdrawn
Purpose:
most important source of
short term finance available
to company
cover short-term cash deficit
of business's operation
Repayment:
repayable on demand
=> bank can ends overdraft facility without warning, business will be at risk of insolvency
Short-term loan
Amount:
fixed amount and is drawn at the beginning of the loan period
Repayment
specified time or in defined instalments
Once
the loan is agreed, the terms of loan is adhered
to provided that the customers not fall behind with repayment (k chậm trả nợ)
Trade credit
Major source of short term finance
Current assets such as material be
purchased on credit
Loss to apply early settment discount
from suppliers
(
nợ tiền thì k trả sớm đc để có chiết khấu sớm
)
Considered as
interest free
short-term loan
Unacceptable delays
in
payment
leads to
-** worsen credit rating
additional credit in future**
Short-term lease
Operating lease of non current asset
Refer chapter 8: Special case of investment appraisal
Compare between overdraft and short-term loan
Long-term finance
Equity finance
Preference share
Shares has the right to receive devident with % on nominal value before dividend paid to ordinary shareholder
Pros
Fixed devidend
Flexible than debt finance
no secure on asset
Cons
No tax relief on devidend paid
Compare to debt: debt has interest -> reduce taxable profit the acctract tax rerief
SMEs
Definition
Firms are likely to be unquoted
Ownership of the business is restricted to a few individuals, typical family group.
Source of finance
Business angel financing
Business angels are wealthy individuals or groups of individuals who invest directly in small businesses. They are prepared to take high risks in the hope of high returns
Informal in terms of a market and can be difficult to set up.
Less need to provide business angels with detailed information about the company
Crowdfunding
the funding of a project by raising money from a large
usually carried out via the internet
involves the people willing to support the project and a platform to bring them together.
Supply chain fiance
Government aid
Loan scheme
governments may provide loan schemes to facilitate lending to viable businesses that have been turned down for a normal commercial loan due to a lack of security or a proven track record
(
chính phủ có thể cung cấp các chương trình cho vay để tạo điều kiện cho vay đối với các doanh nghiệp khả thi đã bị từ chối cho một khoản vay thương mại thông thường do thiếu bảo đảm hoặc do hồ sơ theo dõi đã được chứng minh)
Grant
A grant is a sum of money given to an individual or business for a specific project or purpose. A grant usually covers only part of the total costs involved.
(
Khoản trợ cấp là một khoản tiền được trao cho một cá nhân hoặc doanh nghiệp cho một dự án hoặc mục đích cụ thể. Một khoản trợ cấp thường chỉ bao gồm một phần của tổng chi phí liên quan.)
Venture captial :red_flag:
Definition
risk capital, normally provided in return for an
equity stake
Types of Business that
attract venture capital:
high growth potential
Business start-up:
provide finance for start-up biz to enable it to get off the ground
Business development:
to support expansion in form of new products, newmarket or business acquisition
Management buyouts:
purchase of all or parts of a business from its owner by its managers
Secondary purchase
of share from one owner of a company who want to realize all or part of his investment.
Note that
The
institution will want an equity stake
in the company.
It may want to have
a representative appointed to the company’s
to look after its interests, or an independent director
It will need convincing that the company can be successful
Long-term debt
Debt finance
Factors influencing choice of debt finance
Amount and credit rating
Security and convenant (thê chấp, tín chấp)
Security/convenants which lender impose will determine the choices of debt finance
Types of interest rate
Expectation of interest movement -> borrow at fixed or floating rate
Duration:
Matching the length of loan to the length of time asset purchased generate revenue
Availability
Listed companies:many choices such as issue bond on exchange stock
Small companies: significant debt from bank
Loan notes
Deep discount bond
Deep discount on issue price
=> large capital gain = issue price - redemption value
Redeemable at par
Interest/coupon rate < normal type
Zero coupon bond
Issues at a discount to redemption value
No coupon
Borrower: no cash repayment till redemption date
Lender: less advantge unless the rate of discount not offer high yield (return cao)
Convertible bond
give the holder the right to conver to other securities normally ordinary share at a predetermined date/price
Covertible term
Conversion value = Conversion ratio x Market price of ordinary share
Conversion ratio = number of shares can be converted per nominal amount of bond
Conversion premium = current market value of bond – current conversion value
Coupon rate < rate of straight bond (bond thông thường)
Long term lease
Financial lease performed in chapter 8
Bank loan
condition for a firm to obtain bank loan:
convincing business plan
provide a security with fixed/ floating rate
Positive convenant (Maintain a certain level of financial ratio)
Nagative convenant (limited borrower's behavior)
Methods of raising equity finance
Internal finance
Right issues
Placing
Public offer
Islamic finance
Riba is forbidden
Murabaha
Musharaka
Mudaraba
Ijara
Sukuk