1. Long Term Finance

Question 1

What is an Ordinary Share?

Answer 1

Dividends paid at discretion.

Shareholders have a right to attend meetings and have voting rights.

Question 2

What is a Preference Share?

Answer 2

Shareholders have a right to attend meetings and have voting rights.
Paid a fixed dividend.
For Risk Averse Investors

Question 3

What is a Cumulative Preference Share?

Answer 3

Shareholders have a right to attend meetings and have voting rights.
Paid a fixed dividend.
The dividend will accumulate or roll forward if not paid in the period in which it is due.

Question 4

What is a non-cumulative Preference Share?

Answer 4

Shareholders have a right to attend meetings and have voting rights.
Paid a fixed dividend.
The dividend will NOT accumulate or roll forward if not paid in the period in which it is due.

Question 5

What is a Participatory Preference Share?

Answer 5

Shareholders have a right to attend meetings and have voting rights.
Paid a fixed dividend plus additional extra dividends based on extra conditions such as financial ratios or targets being met.

Question 6

What is a Convertible Preference Share?

Answer 6

Shareholders have an option to exchange preference shares for ordinary at a future date.

Question 7

What are the functions of the Capital Market?

Answer 7

Primary: Enable firms to raise finance.
Secondary: Buy and Sell of Shares.

Question 8

What are the pros and cons of being listed on a stock exchange?

Answer 8

PROS:
Accurate Valuation
Buy/Sell of shares
Raise Profile 
Raise Capital 
Employee Share Scheme

CONS:
Costly
Possible loss of control
Onerous reporting requirements
Stringent Stock Exchange Rules

Question 9

Who are the Role players and their functions in Long Term Finance?

Answer 9

1. STOCKBROKERS: Methods to obtain listing
2. INSTITUTIONAL INVESTORS: Buy shares, acceptable share price, major influence
3. REGISTRARS: Admin, collect & process apps, monitor payments, advice/info re: share issue
4. PR & INVESTOR RELATIONS: Transparent Comms, understand, inform and improve uptake
5. REPORTING ACCOUNTANTS: Impact on AFS
6. UNDERWRITERS: Take on risk iro new share issue, promotion to 3rd parties

Question 10

What is an IPO?

Answer 10

An Initial Public Offering is the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors

Question 11

What is a Rights Issue?

Answer 11

New shares are offered to existing shareholders first to prevent dilution of their shareholding. They have the option to buy new shares at a lesser price while maintaining voting rights.

This method is a cheap and simple way to raise finance, are mostly successful and leads to favourable PR.

Rights issues can be waived with consent of the shareholders.

Question 12

What are the main sources of Long Term Finance other than shares?

Answer 12

Debt Finance:

1. Security Charges (fixed or floating)
2. Covenants (restrict actions or specific targets)
3. Moneymarket
4. Bonds
5. Revolving Credit Facilities

Question 13

What are the other possible sources of Long Term Finance?

Answer 13

Other Sources:

1. Retained Earnings
2. Sale & Leaseback
3. Debts with warrants
4. Convertible Debt
5. Venture Capital
6. Business Angels