5 - Financing Decisions

Question 1

What is Debt Factoring?

Answer 1

Normally used by smaller organisations to help finance their working capital requirements

Question 2

What is Equity Finance?

Answer 2

The Ordinary Shares in a business

Question 3

What is the book value of Equity?

Answer 3

Ordinary Shares plus Retained earnings

Question 4

What is the Market Value of Equity?

Answer 4

Share Price x The Number of shares

Question 5

What are loan stocks (debentures)

Answer 5

Usually fixed interest rate borrowings with a set repayment date

Question 6

In this exam treat preference shares as…

Answer 6

Debt

Question 7

What is the Dividend pay-out ratio

Answer 7

Dividend / Earnings after tax AND preference dividends

Question 8

What is an IPO

Answer 8

An Initial public offering, when a company is first listed on the stock exchange

Question 9

What is underwriting?

Answer 9

In exchange for a fixed fee, usually 1-2% of the total finance to be raised, an institution or group of them, will undertake to purchase any securities not subscribed for by the public

Like insurance

Question 10

What is the dividend yield?

Answer 10

Dividend per share / Market price per share * 100

Question 11

What is the earnings per share ratio?

Answer 11

# of ordinary shares issued

Question 12

What is the price-earnings ratio?

Answer 12

Market Price Per Share / EPS (earnings per share)

Question 13

What is Venture Capital?

Answer 13

Risk baring capital provided in return for an equity stake in a business (aiming for growth potential)

Question 14

What is Green Financing?

Answer 14

Investments in Environment Goods and services

Schemes that encourage sustainability

Green Loan Principals (specific and clear)

Question 15

What is weak form efficiency?

Answer 15

Share price reflects past price movements

follow a random walk, and future movements cannot be predicted

Question 16

What is semi-strong form efficiency?

Answer 16

Share prices incorporate all PUBLICALLY available information. Only insider traders could beat the market (as they have non-public information)

Question 17

What is strong form efficiency?

Answer 17

Share prices reflect ALL information (impossible). No investor could beat the market as superior information does not exist.

Question 18

If calculating the gearing ratio with book values, DO include

Answer 18

Retained earnings

Question 19

What is An offer for subscription?

Answer 19

Shares are offered directly to the public (no issuing house)