ACST101 Lecture Notes - Lecture 11: Open Outcry, Risk Compensation, Seasoned Equity Offering
29 Jun 2018
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ACST101 LECTURE – 24/5/18
WK11; RAISING CAPITAL
SOURCES OF CAPITAL
- Raising capital is all about how a business obtains money to operate
- The two main sources are;
oDebt or Borrowings (bank loans, bonds)
oEquity (share capital from issuing shares… preference shares and ordinary
shares)
MARKET FOR CORPORATE BONDS
Largest investors in corporate bonds are superannuation funds, investment funds and life
insurance companies.
- Trades in this market tend to be in very large blocks of securities
- Most secondary market corporate bond transactions take place through dealers in
the over-the-counter (OTC) market
-REFRESH FROM TOPIC 6 – only small number of existing total bonds actually trade
on single day (Result; corporate bond market is thin compared to market for
corporate shares)
- Prices in corporate bond market tend to be more volatile than that of securities sold
in market with greater trading volumes
BOND PRICE INFORMATION
- Corporate bond market not considered very transparent; it trades predominantly
OTC, difficult for investors to view prices, trading volume
- Many corporate bond transactions are negotiated between buyer and seller; there is
little centralised reporting of these deals
find more resources at oneclass.com
find more resources at oneclass.com
THE MARKET FOR SHARES
- Equity securities are a company’s certificates of ownership
- Outstanding shares of a company are bought and sold among investors on the
secondary market
- From investor’s perspective, secondary markets provide marketability at a fair price
for shares
- Virtually all secondary equity market transactions in Australia take place on the ASX
- Active secondary market enables companies to sell their new debt or equity issues at
lower funding costs
Auction
- In an auction market, buyers and sellers confront each other directly and bargain
over price
- The ASX originally operated as an ‘open out-cry’ market (ASX is an electronic market)
find more resources at oneclass.com
find more resources at oneclass.com
- In NYSE, auction for a security takes place at a specific location on the floor of the
exchange, called a post
- The auctioneer is the specialist designated by the exchange and allowed to act as
dealer to represent orders placed by public customers
HOW DOES A COMPANY RAISE CAPITAL?
oBootstrapping
oCrowd funding
oVenture Capital
oInitial Public Offering (IPO)
oOpen offers by a public company (SEO)
oPrivate markets and bank loans
Bootstrapping
How new businesses get started
- Most businesses are started by an entrepreneur with a vision for a new business or
product and a passionate belief in the concept’s viability
- The entrepreneur often fleshes out his or her ideas and makes them operational
through informal discussions with people whom the entrepreneur respects and
trusts, such as friends and early investors
Initial funding of the company
- The process used by entrepreneurs to raise “seed” money and obtain other
resources necessary to start their businesses is often called bootstrapping
- The initial “seed” money usually comes from the entrepreneur or other founders
- Other cash may come from personal savings, the sale of assets such as cars and
boats, loans from family, loans secured from credit cards
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Raising capital is all about how a business obtains money to operate. The two main sources are: debt or borrowings (bank loans, bonds, equity (share capital from issuing shares preference shares and ordinary shares) Largest investors in corporate bonds are superannuation funds, investment funds and life insurance companies. Trades in this market tend to be in very large blocks of securities. Most secondary market corporate bond transactions take place through dealers in the over-the-counter (otc) market. Refresh from topic 6 only small number of existing total bonds actually trade on single day (result; corporate bond market is thin compared to market for corporate shares) Prices in corporate bond market tend to be more volatile than that of securities sold in market with greater trading volumes. Corporate bond market not considered very transparent; it trades predominantly. Otc, difficult for investors to view prices, trading volume.
