MAF202 Lecture Notes - Lecture 6: Dividend Policy, Market Price, Liquidity Risk
Document Summary
Week 6: firms and investors in the share markets. Financial management: the objective of financial management is to maximise shareholder value. Interest rate risk: foreign exchange risk, credit risk, capital risk, country risk. The financing decision and debt to equity ratio (d/e) D/e is the ratio of funds borrowed (debt) to funds contributed by shareholders (equity). D/e indicates the risk of being unable to meet interest due and principal repayments associated with the use of debt i. e. insolvency. Although there is no agreed ideal d/e ratio, factors influencing the d/e ratio in practice are: Industry norms: historic levels of firms ratio, limit imposed by lenders through loan covenants i. e. restrictions placed on a borrower specified loan contract, ma(cid:374)age(cid:373)e(cid:374)t"s assess(cid:373)e(cid:374)t of the fi(cid:396)(cid:373)s (cid:272)apa(cid:272)it(cid:455) to se(cid:396)(cid:448)i(cid:272)e the de(cid:271)t. Ipo is an offer to investors of ordinary shares in a newly listed company on a stock exchange. Company appoints advisors (corporate advisors, brokers, underwriters)
