BU111 Study Guide - Midterm Guide: Debenture, Swot Analysis
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Important Lecture Notes
Business Success Factors
- Achieve financial performance
- Meeting customer needs
- Providing quality products and services
- Encouraging innovation and creativity
- Gain employee commitment
Stakeholders – individuals/groups who depend on a company for personal goals.
Primary – Owners, customers, employees
Secondary – Suppliers, Creditors, Communities, Government, Society
If unclear about success factors, and direction, the firm can potentially go bankrupt.
Management’s Primary Objective – Devise and implement strategies that will allow the organization to
achieve critical success factors.
Bonds/Debentures – Large corporations use this to finance operations, and securities.
- IOU kind of note from the government.
ABC 7 of 30 - 7% Interest Date of Maturity, 2030. We always assume bonds are 20 years in BU111.
- First in line when companies fall apart, and have to liquidate their assets.
o Order of Liquidation
Secured Creditors (Banks, Bondholders)
Preferred Creditors (Gov)
Unsecured Creditors (Suppliers, Employees, Debenture Holders)
- Must pay in full before moving onto the next group.
- Mortgage bonds – real property land building
- Collateral Trust bond – Stocks and bonds
- Equipment Trust Bond – machinery and equipment
- Debenture – no collateral, bondholders are unsecured
- Hybrid between bonds, common stocks.
- Fixed annual rate of dividends
- No date of final maturity, can sell anytime you want
- Liquidation Rights (All debts to Preferred Stocks must be paid in full FIRST)
- Features of Preferred Shares
o Cumulative Feature (Interest add up throughout the years)
o Call Feature (Allows the issuer to buy back)
o Conversion Feature (Investors can convert preferred shares to common shares)
o Participating Feature (Additional profits if extra dividends are left)
Bid and Ask Price
- Ask is the lowest per share anyone is willing to sell
- Bid is the highest per share anyone is willing to buy
Buying on Margin