Business Financing and the Capital Structure
Assignment 2: Business Financing and the Capital Structure
Principles of Finance
Finance 100
December 12, 2013
Business Financing and the Capital Structure
Raising Business Capital As a financial advisor to this business there are two options to consider for raising business capital, equity financing and debt financing. The details, advantages, and disadvantages of both options will be provided. Also information about raising capital by selecting an investment banker will be discussed. To wrap up, the historical relationships between risk and return for common stocks versus corporate bonds will be examined.
Equity Financing In terms of equity financing it is the process of raising capital through the sale of shares in an enterprise (National Federation of Independent Business, 2011). Equity financing is the sale of an ownership interest to raise funds for business purposes. “Equity financing spans a wide range of activities in scale and scope, from a few thousand dollars raised by an entrepreneur from friends and family, to giant initial public offerings (IPOs) running into the billions by household names such as Google and Facebook” (Kokemuller, 2013). The equity-financing process is governed by regulations imposed by local or national securities authority in most jurisdictions. The regulations are designed to protect the public from investing with unhonest operators who may raise funds from unsuspecting investors and disappear with the money. An equity financing is therefore generally accompanied by an offering memorandum or prospectus, which contains a great deal of information that should help the investor make an informed decision about the merits of the financing (National Federation of Independent Business, 2011). Such information includes the company's activities, details on its officers and directors, use of financing proceeds, risk factors, financial statements and so on.
Principles of Finance
Finance 100
December 12, 2013
Business Financing and the Capital Structure
Raising Business Capital As a financial advisor to this business there are two options to consider for raising business capital, equity financing and debt financing. The details, advantages, and disadvantages of both options will be provided. Also information about raising capital by selecting an investment banker will be discussed. To wrap up, the historical relationships between risk and return for common stocks versus corporate bonds will be examined.
Equity Financing In terms of equity financing it is the process of raising capital through the sale of shares in an enterprise (National Federation of Independent Business, 2011). Equity financing is the sale of an ownership interest to raise funds for business purposes. “Equity financing spans a wide range of activities in scale and scope, from a few thousand dollars raised by an entrepreneur from friends and family, to giant initial public offerings (IPOs) running into the billions by household names such as Google and Facebook” (Kokemuller, 2013). The equity-financing process is governed by regulations imposed by local or national securities authority in most jurisdictions. The regulations are designed to protect the public from investing with unhonest operators who may raise funds from unsuspecting investors and disappear with the money. An equity financing is therefore generally accompanied by an offering memorandum or prospectus, which contains a great deal of information that should help the investor make an informed decision about the merits of the financing (National Federation of Independent Business, 2011). Such information includes the company's activities, details on its officers and directors, use of financing proceeds, risk factors, financial statements and so on.
References: Growth Company Guide. (2000).Investment bankers. Retrieved from http://www.growco.com/ gcg _ entries/investmentbankers1.htm Investopedia. (2012).Debt financing. Retrieved from http://www.investopedia.com/terms/d/debt financing Kokemuller, N. (2013). The advantages and disadvantages of debt and equity financing. Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-debt-equity-financing- 55504.html National Federation of Independent Business. (2011, June 07). Debt vs. equity financing. Retrieved from http://www.nfib.com/business-resources/business-resources-item?cmsid=50036 Sandilands, T. (2013).Are corporate bonds riskier than common or preferred stock?. Retrieved from http://smallbusiness.chron.com/corporate-bonds-riskier-common-preferred-stock-38641.html