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B294 - Unit 2 - Coggle Diagram

- - - - Two become one
      - One buys another
      - Three types
        
        Vertical
        
        Different levels of supply chain
        
        Supplier buying customer
        
        Customer buying supplier
        
        Conglomerate
        
        Unrelated companies brought together
        
        e.g. Virgin
        
        Music
        
        Mobile
        
        Rail
        
        Horizontal
        
        Two business in same industry
        
        Similar products
        
        Similar services
      - Purpose
        
        Add value
        
        Create synergies
        
        Complementary resources
        
        Industry consolidations
        
        Economies of vertical integration
        
        Generate surplus cash
        
        Investment opportunity
        
        Economies of scale
      - Financing methods
        
        Exchange of stocks
        
        Issue Bonds or Shares
        
        Cash
        
        Bank loans
  - - - Regular
      - Special one-off
      - Cash
        
        Paid from profit
      - Stock
        
        Reward with more shareholding
    - - Improve value
      - Increase payments to shareholders
        
        By increasing earnings per share
      - Three types
        
        Tender offers
        
        Specific price at a substantial premium
        
        Targeted
        
        Prevents or stall a hostile takeover
        
        Open market
        
        Interested parties take up offer
- - - - Time
        
        Short-term
        
        Within 1 year
        
        Temporary shortfalls
        
        More flexible
        
        lower cost
        
        Debt factoring
        
        Selling debts to third party
        
        Business retains %
        
        Gains immediately
        
        Gains remaining % on original payment date
        
        Incurs arrangement fee
        
        Immediately releases funds
        
        Typical in industries with consistent delays
        
        Invoice discounting
        
        Third party conducts audit
        
        Provides % of funds
        
        Remainder paid on receipt
        
        1 more item...
        
        Funds + fee paid to invoice discounter
        
        Working capital management
        
        Current assets - current liabilities
        
        Reducing inventory levels
        
        Sell for cash
        
        Discount?
        
        Use overdrafts
        
        Run negative working capital
        
        Borrow money from suppliers
        
        Do not pay invoices
        
        Long-term
        
        Longer than 1 year
        
        Acquisitions
        
        Assets
        
        Other organisations
        
        Relatively inflexible
        
        Higher cost
        
        Retained earnings
        
        From previous trading years
        
        = retained earnings + income(loss) - dividends distributed
        
        Must consider opportunity cost
        
        Could earnings generate more elsewhere?
        
        Also consider cost
      - Space
        
        Internal
        
        External
        
        Equity financing
        
        Issue of shares
        
        Ordinary
        
        Premium
        
        Dilution of control
        
        Shareholder expectations vs management expectations
        
        Venture capital
        
        Long-term
        
        Wealthy individuals invest in risky projects
        
        Provide
        
        Knowledge
        
        Connections
        
        Support
        
        Crowdfunding
        
        Short-term
        
        Equity
        
        e.g. Brewdog
        
        Rewards-based
        
        e.g. board games
        
        Debt finance
        
        No protection for investor
        
        Test potential
        
        Debt financing
        
        Bonds
        
        Debentures
        
        Bank loan
        
        Long-term
        
        Must be repaid
        
        Agreed interest rate
        
        Assessment of suitability for credit
        
        Banks want low risk
        
        1 more item...
        
        Monthly interest payment = interest rate / number of payments * outstanding principal
        
        New balance = principal - principal payments
        
        Retain control
        
        Overdraft
        
        Pre-agreed limit
        
        Interest charge + fee
        
        Suitable for seasonal work
        
        Can be called in at any moment
        
        Higher rate than bank loan
        
        Peer-to-peer lending
        
        Facilitated online
        
        Lenders paired with lendees
        
        Borrower may not pay
        
        Lease agreements
        
        Hire asset
        
        Repossession if missed payments
        
        Flexibility
  - - - Long-term bonds
      - Shares
      - Gilts
      - Primary
        
        Newly created assets
      - Secondary
        
        Existing traded assets
        
        Highest volume
        
        Over the counter (OTC)
        
        Trading relationships between dealers
    - - Cash
        
        FEX
      - Commercial papers
      - Certificates of deposit
      - Inter-bank loans
      - Sale and repurchase
- - - - Ordinary
        
        No special rights
        
        No restrictions
        
        Receive dividends
        
        Receive share of remaining capital or assets
        
        If company wound up
        
        Voting rights
      - Preference
        
        No voting rights
        
        Fixed rate dividend
        
        Preferential claim of dividends
        
        Higher priority in case of insolvency
      - Benefit of capital gains
        
        e.g. shares increase in value
        
        Realised when sold
    - - Sold to
        
        Private investors
        
        Venture capitalists
      - Other existing shareholders
      - Transition to public
        
        Greater admin burden
        
        Dilution of control
    - - Traded shares
        
        Stock market
        
        Hedge funds
        
        Private
        
        Higher risk
        
        Mutual funds
        
        Portfolio of grouped investors
        
        Managed by professional
        
        Initial public offering (IPO)
        
        Appoint leads
        
        Underwrite shares
        
        Appoint legal advisors
        
        Decide stock exchange to list
        
        1 more item...
  - - - At home
      - Abroad
        
        Comply with local regulations
    - - Credit rating agencies
        
        Provide rating
        
        AAA to D
        
        BB+ and below = junk
        
        Moody's
        
        Standard and Poor's
        
        Fitch
      - Reviewed by FCA
        
        Or relevant authority
    - - Coupon rate
        
        Interest rate
        
        At agreed dates
        
        Yearly
        
        Half-yearly
        
        Fixed
        
        Zero
        
        Variable
        
        Convertible
      - Maturity rate
        
        Date bond is repaid in full
        
        Typically up to 10 years
      - Face value
        
        Appears on certificate
      - Market rate
        
        MV > FV
        
        Premium
        
        MV < FV
        
        Discount
        
        MV = FV
        
        Par
        
        Current traded value
        
        Impact on rate
        
        Credit ratings
        
        Interest rates
        
        Inflation
- - - - Government pays for lease of services
  - - - If in deficit
      - Issue Bonds
        
        Given credit rating
        
        Seen as strong