long term Flashcards
(36 cards)
What is equity as a source of finance?
Long-term finance raised by issuing shares; Does not require repayment or interest
What are advantages of equity finance?
No interest payments; Improves gearing ratio
What are disadvantages of equity finance?
Dilutes ownership/control; Dividends may be expected
What are equity shares?
Shares that represent ownership in a company; Also known as ordinary shares
Who are ordinary shareholders?
Owners of equity shares; Paid after creditors and tax in liquidation
What does issuing equity do for a company?
Raises permanent capital; Enhances public profile and credibility
Why might a company issue equity?
To raise large funds without debt; To reduce financial risk or improve creditworthiness
How can a company issue equity?
Through public listing (IPO); Via different methods such as placing or rights issues
What is an IPO?
Initial Public Offering; First time a company offers shares to the public on a stock exchange
What are benefits of IPO?
Access to large capital; Increases public awareness and prestige
What are drawbacks of IPO?
High regulatory costs; Public scrutiny and loss of privacy
What is the Main Market?
London Stock Exchange’s premium segment for established companies; High regulatory standards
What is AIM?
Alternative Investment Market for smaller or growing companies; More flexible regulation
What are advantages of Main Market listing?
Increased investor trust; Access to larger institutional investors
What are disadvantages of Main Market listing?
Costly and complex compliance; Greater public scrutiny
What are advantages of AIM listing?
Lower cost; More flexible reporting requirements
What are disadvantages of AIM listing?
Less investor confidence; Lower liquidity than Main Market
What does it mean to float on the stock market?
To become a publicly listed company; Usually by joining the Main Market or AIM
What is a sponsor in stock markets?
A regulated firm that helps a company prepare for listing on an exchange; Usually the sponsor’s clients
What does a sponsor do?
Guides the company through listing; Ensures regulatory compliance; Acts as liaison with the exchange; Administers share sales like offers and placings
Why is a sponsor important?
Helps meet legal requirements; Builds investor confidence; Supports ongoing compliance after listing
What can incorrect pricing of shares lead to?
Overpricing can cause shares to be undersubscribed; Underpricing may leave money on the table
What is an offer for sale?
Selling new shares directly to the public at a fixed price; Usually administered by a sponsor or investment bank
What are advantages of offer for sale?
Assured sale of shares; Sponsor bears the risk of undersubscription
