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raising finance- small and medium-sized organisations pg157 - Coggle…
raising finance- small and medium-sized organisations pg157
forms of finance pg157
retained earnings
working capital management
debt factoring
bank overdrafts
bank facilities
leasing
equity finance
financing through retained earnings and working capital management pg158
working capital
resources organization has at their disposal
cash held in bank
value of stock held- inventory
cash due to be received- receivables
less cash due to suppliers- payables
early years
limited profitability- start up costs
negative working capital
outstanding amounts due to creditors exceed those due to be received from customers
exposure to reputational damage
late payments pg159
suppliers right to claim an interest penalty beyond agreed credit period (30 days)
Late payment of commercial debts(interest) act of 1998
financing through debt factoring pg160
credit exposure reduction and cash flow management
sells its receivables accounts to a third party at a discount value
entering into an agreement with a factoring house
might initially pay up to 90% of the trade debt
attractions pg161
gets cash promptly
pay suppliers
provide working capital to continue business activities
forms of factoring pg161
recourse
factoring house will come back to organisation in the event of non-payment from debtor
non-recourse
risk of non-payment is completely transferred
to factoring house
fees higher
bank overdrafts and bank facility finances pg162
overdrafts
bank current accounts that have a negative balance
type of bank loan
suited for seasonal or other temporary cash flow shortages
terms
maximum size of overdraft
interest chargeable
whether fees are charged when overdraft is utilised
review period at least once a year
covenants of financial performance
notice periods
security provided- collatoral- property
bank facility finances
draw on a larger pool of funds from either one or several banks
major source of funds
bilateral facility
borrower raises funds or establishes the right to draw on a banking facility from one bank pg163
syndicated financing pg163
number of banks have a share in the facility
interest rate is usually linked to the prevailing 3-month money market rate- 3-,onth LIBOR pg163
LIBOR pg163
London interbank offering rate
calculated by Thomson Reuters
18 banks submit their cost of borrowing unsecured funds for 15 periods of time pg163
Lease finance pg164
organisation arranges for a bank to acquire an asset that it needs and then leases it from the bank
bank is lessor and organisation is lessee
2 forms of lease finance
legal ownership of the asset remains with the lessor and all benefits and risks transferred to lessee
operating leases- lessee is in effect borrowing the asset from the lessor and making rental payment for the use of the assets pg165
cash flow benefits pg165
does not commit large sums upfront to buy the assets
equity finance pg166
issue shares in order to finance their operations
expected return from dividends
payments typically annual of half-yearly
forms
ordinary shares
give shareholders ownership of the company and entitlement to a share of the profits
have voting rights
preference shares
gives shareholders ownership of the company
rate of dividend on preference shares is usually fixed
share warrants
gives the holder the right, but not obligation of exercise to obtain shares at a defined price
shares have nominal value or par value as well as market value
nominal value is face value of security
LSE pg167
basis of the 2011 trading data
sixth largest stock exchange in the world
venture capital and private equity pg167
venture capital
issues shares, a major target group of investors, apart from the founders of the company and its management
suppliers of private equity finance
UK venture capital companies invested £62 billion in 26,000 companies world wide between 1984 and 2005
global financial crisis 2008 made it more difficult to raise finance
pg168
private equity in Europe and Asia is sufficient source of finance pg168
hedge fund pg168
fund management companies that adopt a range of investment and trading strategies
adopting aggressive and high-risk investment activities
features
targeted at wealthy individuals
managers of hedge funds charge high fees for their services
adopt riskier investments
lightly regulated
benefits of private equity finance pg169
higher returns from their investment than through conventional investments
spread of returns- likely to be far wider that that resulting from stock exchange investments
lower gearing- the amount of debt an organization has in its capital structure
raising capital usually faster than accessing public capital markets pg170