For many companies the need to raise additional cash to increase company wealth is an issue that they will come across. There are two types of Finance, which are Debt and Equity capital. Debt capital finance; are available in the form of bonds, bank loans, Trust deeds, covenants and syndicated loans. The debt is usually repaid with regular interest and spread over a period or given in a lump sum. Debt is less expensive than equity finance, due to the lower rate of return required by finance providers. The rate of return is lower because investors recognise that investing in a firm through debt finance is less risky than through shares.
Debt is very different from equity finance as the lender has no official control, they cannot vote, choose directors or interfere with company strategy. But they can set rules regarding liquidity and solvency ratio levels; if a debt is unpaid they may also take charge of an asset.
The other form of capital is through equity financing, this is in the form of ordinary shares, and if a company is not already listed it would need to go through the process of gaining a quotation on the Main market of the London Stock Exchange (LSE) or other international exchanges. There is also the option of listing on the Alternative Investment Market (AIM) where the process is less costly and the regulations are less strict. Another option of raising finance is to make additional share rights issue. Ordinary shares issued have the right to exercise control, discuss strategy and are entitled to dividends being paid out by the company in regular payments.
A company which has been in the news for raising company wealth through equity finance, Facebook the social networking site has launched the process for its stock market debut – through which anyone will be able to buy shares in the company on an open stock exchange. It has filed papers for a $5bn initial public interest that will turn key shareholders into Billionaires including Mark Zuckerberg, whom still owns a 28.4% stake. The Initial public offering (IPO) that is likely to drarf Googles entrance to the IPO market in 2004.
But is this any good for the consumers and what will this mean? In the future the need to increase shareholder wealth maximisation, talked about in my first blog. Could we see the effects of money influences taking control? Will this in theory be the end of the fun Facebook we know and love and just another branding and marketing campaign that Mark Zuckerberg did not want. Can a multimillion pound company still have the same goal as when it started eight years ago in his dorm room or is its only goal a cash agenda.
Sources: (Arnald, G. 2008. Financial Times, CNN, Bloomberg)
No comments:
Post a Comment