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raising finance - small and medium sized organisations - Coggle Diagram
raising finance - small and medium sized organisations
financing through retained earnings and working capital
could operate on negative working capital - outstanding amounts due used to finance - could be dangerous - damage relationship with supplier.
working capital - resources available after day to day running - cash , stock holdings, cash due from cusstomers less cash to be paid suppliers
small orgs - vulnerable to late payments by customers - deep sources liquidity and limited borrowing
late payment of commercial debts - able to claim interest
financing through debt factoring
org sells its receivables value to a factoring house for discounted amount in return for payments
using working capital to finance + improve cash position
2 types of factoring - recourse - come back to org when non-payment and non-recourse - risk of non-payment is transferred to factoring house
bank overdrafts and bank facility finances
overdrafts - only finance available to small orgs - well suited to seasonal or temperal cash flow shortages - directly impact cash for org
negotiations on - size, legnth, review period, notice periods, security provided
bank facility finance - for orgs without for size for money and capital markets
capital markets - insurance of bonds and other securities
credit ratings - creditworthiness
bilateral - raises funds/ establishes right to draw on banking facility
syndicated - number of banks share the risk of the debt - one bank is main lender + later on more proportion is sold on to more
interest charged - linked to 3 month prevailing money-market rate + bank adds a margin - this overall rate is the draw fee
for it it to be practical - must take committed - provided the org complies with the terms - then bank has to provide funds when required - uncommitted - the bank does not have to provide funds if bad economic conditions
LIBOR - london interbank offering rate - rate that banks can lend each other - calculated by cost of unsecured funds for 15 periods up to 12 months.
lease finance
org arranges for bank to acquire asset for organisation - then leases to org
end of lease - final payment to bank for the ownership of the assets-two types - attractive to both - form of secured borrowing + does not have to commit large sums of money
finance leases - legal ownership with lessor and all benefits and risks transfered to lesee
operating lease - lessor retain the risks and benefit of leased assets - essentially borrowing
risks of leasing - woolworths sold 182 stores and lease back - added with huge lease payments - unable to produce enough cash to pay off liabilities and debts
equity finance
can issue shares to finance operations
ordinary shares - gives ownership of company and entitlement of share of profits after creditors have been paid - citing rights but no entitlement to dividends
preference - give ownership - rate of dividend is fixed and is paybable before ordinary share dividend is paid - cumulative - paid before ordinary shares - have voting rights on big events
shares - nominal value + market value - no expectation of prices to be similar
nominal - face value of a security being the amount an issuer to investor on its maturity date - minimum price to be issued determines statement of share capital in balance shet - if share issued above this vogue - share premium + placed in share premium account
market value - value they are sold/baught on market must be valued on bid price - offer - is price that can be bought and is slightly higher - difference - bid-to-offer spread -
venture capital and private equity
major target group of investors - venture investors - suppliers of private equity finance
hedge funds - fund management companies - range of investment and trading stratagies
some targeted at wealthy individuals
managers charge high fees
adopt riskier investment strategies
lightly regulated