Anh Nguyen » admin

Contemporary Corporate Finance

admin — Mon, 06 Dec 2010 00:38:03 +0000

Portfolio Theory

“is a theory of investment which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets” (wikipedia)

Calculating holding -period returns

Before investing in shares, investors usually have a careful look at financial statements. In order to know how much return will be for a single share invested, we have formulas as follows:

If the investor hold shares for 1 year, Return will be:

R = (D1 + P1 – P0) / P0

where :

R is percentage of return

D1 is dividend received

P0 is share price at the time bought

P1 is share price after 1 year period bought

Ex: A share was bought for £2, dividend after one year is 10p, share is sold for £2.20.

R=(0.10+2.20-2)/2= 0.15 or 15%.

Dòng máu anh hùng-Vietnamese film(the fighting scences)

admin — Sat, 30 Jan 2010 16:45:49 +0000

Mr Bean makes sandwich!

admin — Thu, 28 Jan 2010 02:54:47 +0000

Anh không muốn mất em(I don’t want to lose you)

admin — Tue, 19 Jan 2010 23:44:00 +0000

I’m a gummy bear

admin — Fri, 15 Jan 2010 07:39:51 +0000

The Time Is Now (Mix)

admin — Mon, 11 Jan 2010 02:40:24 +0000

SOURCES OF LONG TERM FINANCE

admin — Mon, 11 Jan 2010 01:20:27 +0000

Need for long term Finance
Long term vs. short term(working capital) funds requirements
For modernization, expansion, diversification; huge quantities reqd., irreversible decision
Asset-liability mismatch, interest rate risk, liquidity risk, if LT reqts.met by ST funds
Equity Capital
Authorized, Issued, Subscribed and Paid up capital
Par/face value, Issue Price, Book value and Market Value
Rights of equity shareholders
Right to Income : PAT less preferred dividends
Right to Control : voting rights
Pre-emptive Right : for additional issues, rights issue in the same proportion
Right in liquidation : residual claim over assets
4. Advantages and Disadvantages of equity Capital
*Advantages
No fixed maturity, no obligation to redeem
No compulsion to pay dividends
Provides leverage capacity
Dividends tax exempt for investors
* Disadvantages
Dilution of control of existing owners
High Cost: rate of return expected by equityholders higher than debtholders
Dividends are not tax deductible: hence cost is higher
Issue costs higher: underwriting, brokerage, other issue expenses
Higher servicing costs: hold AGMs(Annual General Meeting), post annual reports etc.
5. Internal Accruals
Readily available, no talking to outsiders
Effectively additional equity capital, however no issue costs of loss due to underpricing
No dilution of control
No expansion in equity base, hence no dilution of EPS, BV per share etc.
Quantum very limited
High Opportunity costs: dividends forgone by equity holders
Requires careful attention to Net Present Value of projects
Consists of retained earnings and depreciation charges
6. Preference share
Is a hybrid form of financing , payment after debt but before equity
*Equity features :
out of distributable profits
not an obligatory payment
dividends not tax deductible
* Debt features :
dividend rate is fixed
capital is redeemable
normally no right to vote
Can have other features like cumulative, convertible, participating…..
7. Preference Capital
Disadvants
* No obligation to pay dividend, no bankruptcy or legal action for non payment
* Financial distress of redemption obligation not very high
* Part of net worth, hence increases its creditworthiness/ leverage capacity
* No dilution of control
* No pledging of assets required
Advants
Expensive source since dividends not tax deductible
Though no legal consequences, liability to pay dividends stands, can spoil company’s image
Can acquire voting rights in some cases
Have claim prior to equity holders
8. Term Loans
Provided by FIs/banks
Can be in domestic/foreign currency , liability on FC loans translated to rupees for payment
Are typically secured against fixed assets/ hypothecation of movable properties, prime security/ collateral security
Definite obligations on interest and principal repayment; interest paid periodically; based on credit risk and pegged to a floor rate
Carry restrictive covenants for future financial and operational decisions of the company, its management, future fund raising, projects, periodic reports called for
9. Term Loans
Advants
Interest on debt is tax deductible
Does not result in dilution of control
Do not partake in value created by the firm
Issue costs of debt is lower
Interest cost is normally fixed, protection against high unexpected inflation
Has a disciplining effect on management
Disadvants
Entails fixed obligation for interest and principal, non payment can even lead to bankruptcy/ legal action
Debt contracts impose restrictions on firm’s financial and operational flexibility
Increases financial leverage, excess raises cost of equity to the firm
If inflation rate dips, cost of debt higher than expected
10. Debentures
Like promissory notes , are instruments for raising LT debt
More flexible compared to term loans as they offer variety of choices as regards maturity, interest rate, security, repayment and other special features
Interest rate can be fixed/floating/deep discount
Convertibility : Can be FCDs, NCDs, PCDs
Warrants : Can have warrants attached, detachable or non detachable, detachable traded separately
Option : Can be with call or put option
Redemption: Bullet payment or redeemed in instalments
Security: Secured or unsecured
Credit rating : Need to have a credit rating by a credit rating agency
Trustee: Need to appoint a trustee to ensure fulfilment of contractual obligations by company
DRR : Company needs to create a DRR if maturity more than 18 months
11. Other forms of Finance
* Leasing: asset leased out in lieu of lease rentals, title not transferred, only economic use of assets given; can be financial lease or operating (service) lease
* Hire Purchase : ownership transferred to the buyer after all the installments paid up
* Securitisation: assets involving financial claims pooled and financial instruments created, thus creating cash out of receivables
* Government Subsidies : central and state govts offer cash subsidies to units in backward areas, classified in three categories
* Sales tax deferments and exemptions : payment deferred for a fixed period, like interest free loan; or exemptions given for certain no. of years
* Suppliers credit : available from suppliers of machinery, other fixed assets, terms devised to defer payment, or pay in installments over a period of time
12. Leasing vs. Hire Purchase
* Leasing
Ownership not transferred to lessee
Depreciation benefit to lessor
Magnitude of funds high, for big ticket items
No margin money/down payment required
Maintenance of asset by lessor in operating lease
Tax benefits of depreciation taken by lessor; lessee gets tax shield on lease rentals
Considered off balance sheet mode of financing, as no asset or liability figures in balance sheet
Hire-Purchase
Ownership transferred to hirer on payment of all instalments
Depreciation shield available to hirer
Maybe for smaller value capital goods
Some down payment reqd
Maintenance cost borne by hirer
Hirer allowed depreciation claim and finance charge for taxation; seller may claim interest on amount borrowed to acquire asset
Asset figures in balance sheet on complete of purchase
13. Raising Long Term Finance
Initial Public Offer (IPO)
Secondary Public offer
Rights Issue
Bought out deals
Euro Issues
Private Placement
Preferential allotment
Venture Capital/ Private Equity transactions
Obtaining a term loan
14. Initial Public Offer
Advants
Access to larger amount of funds
Further growth limited companies not using this route
Listing: provides exit route to promoters; ensures marketability of existing shares
Encash on value created in the firm
Recognition in market
Stock prices provide useful indicators to management
Sometimes stipulated by private investors in the company
Advanta
Pricing may have to be attractive to lure investors
Loss of flexibility
Higher accountability
More disclosure requirements to be met
Visibility in market
Cost of making a public issue quite high
15. Steps in an IPO
Approval of BOD
Shareholders’ approval
Appointment of lead manager(s)
Due diligence by LM
Appointment of intermediaries like registrars, printers, bankers, advertisers
Prepare draft prospectus
Filing with SEBI
Listing applications filed alongwith draft prospectus
Agreement with registrars and depositories
Appoint underwriters (if reqd.)
Make changes in draft prospectus as per SEBI observations, SE suggestions
File prospectus with ROC
Issue marketing exercise commences
Application forms dispatched
Issue opened
Basis of allotment finalised
Allotments made, refunds posted, shares listed on SEs
16. Other aspects of a public issue
* Eligibility criteria defined : net worth, track record of profitability, issue in same year; secondary issues have no such restrictions
* Book Building process : process of tendering quantities at prices within a band
* Issue expenses : underwriting, brokerage commissions, fees to managers to the issue, registrars, printers, advertisers, listing fees, stamp duty
* Issue pricing : free pricing, disclose basis for issue price
* Public issue of debt : appointment of debenture trustee, creation of DRR, credit rating reqd., security to be created
17. Rights Issue
Issue of capital to existing shareholders
Offer made on a pro rata basis
Offer document called Letter of Offer
Option given to apply for additional shares
Rights renunciation : are tradeable, may be sold off in the market
Value of a share after rights:
(NP 0 +S)/(N+1); N=no. of existing shares required for rights; P 0 =cum rights MP per share; S= subscription price of rights issue
Value of a right = (P 0 –S)/(N+1)
Comparison with Public issue : with familiar investors, hence likely to be more successful; less floatation costs since no underwriting; but lower pricing to benefit shareholders
18. Private Placement
Sale of securities directly to wholesale investors like FIs, banks, MFs, FIIs,PE funds etc.
Called private placement in equity/equity related instruments, in unlisted companies and in all cases of debt
Called preferential allotment in case of unlisted companies for equity/equity related instruments
Different from reservations made for such QIBs out of a public issue
Subject to SEBI regulations on pricing, lock in period, open offer to be made to public
QIB placement guidelines recently issued by SEBI for compliance and disclosures
19. Private Placement
Less expensive mode
Lesser SEBI and other regulations
Easier to market the issue to a few investors
Entry of wholesale financially sophisticated investors in company’s profile
May use this route until IPO decision taken
Less administrative maintenance
Advants
Does not qualify for listing in an unlisted company
Restrictive covenants may be imposed by the investors
May call for management participation
Issue pricing more tight
20. Venture Capital/Private Equity
Equity finance to potentially high growth companies
Reasonably long to medium term commitment
Hands on management approach, active participation in management
Considered value add investor
VC: primarily high risk high return investment esp. in technology oriented/ knowledge intensive businesses with long development cycles, greenfield ventures
Can be in unlisted or listed (PIPES) Companies
Exit route to be defined at the time of investment
Restrictive clauses on promoters’ holding sell off and other financial/operational issues
Detailed memorandum/business plan on company, its financials to be prepared
Shareholders agreement to be signed by both parties
Valuation of Company key issue
Leads to dilution of control by existing promoters
21. Obtaining a Term Loan
Submission of loan application : a project report containing complete details of the project given to the FI/Bank
Initial processing of loan application : prepare flash report to decide if project worth an appraisal or not
Project Appraisal: Detailed appraisal done to decide if project taken or not, in terms of market, technical, financial, managerial appraisal
Issue of Letter of Sanction: to the borrower containing amount sanctioned and terms and conditions thereto
Acceptance of terms and conditions by the borrowing unit: through a board meeting and conveyed to the FI/Bank
Execution of loan agreement: signed by both parties
Disbursement of loan: in tranches based on progress of the project, tie up of means of finance
Creation of security: formalities to be completed within a timeframe
Monitoring: at implementation and operational stage thru periodic progress reports, site visits etc.

Perpetual

admin — Fri, 08 Jan 2010 15:14:29 +0000

The coldest winter I’ve ever spent here in Scotland. Snow is everywhere. The city is only in 2 colours: grey and white. People might just want to gather in the pubs and bars for chatting. They could have fun there…
He did wait for me 2 hours and 37 minutes at cinema. There might not someone to be patient like him. He shows his caring so gentle but also subtle.
Promised to come and see him at 6pm, but I hang around and was not keen on seeing him. 8:17pm his text says “we are about miss the second performance again, still coming” I could not believe he was still waiting.
8:37pm I got there at the cinema: he was there, smiling and said “I am still counting the time”. The only word I could say to him was “I’m sorry”
The film was a horror movie. I was not scare but it was disgusting – vampire! He said when I was watching: “This is a punishment for being late!”
He could be angry and leave the cinema long time before the second performance started but he did not do that. There was such behavior from him that makes me have to look at myself and put my care for him.
I was reluctant and thought he would be the same the others.
I felt guilty and I’ve known that how much he does care for me. Maybe I could hardly find someone like him again.
There many things that I can’t say or explain but I am sure that true love will make people do crazy things although they don’t know why and what they might get at the end.

When Grandma Goes To Court

admin — Sun, 27 Dec 2009 23:12:44 +0000

Lawyers should never ask a Mississippi grandma a question if they aren’t
prepared for the answer.

In a trial, a Southern small-town prosecuting attorney called his first
witness, a grandmotherly, elderly woman to the stand. He approached her
and asked, ‘Mrs. Jones, do you know me?’ She responded, ‘Why, yes, I do
know you, Mr. Williams. I’ve known you since you were a boy, and
frankly, you’ve been a big disappointment to me. You lie, you cheat on
your wife, and you manipulate people and talk about them behind their
backs. You think you’re a big shot when you haven’t the brains to
realize you’ll never amount to anything more than a two-bit paper
pusher. Yes, I know you.’

The lawyer was stunned. Not knowing what else to do, he pointed across
the room and asked, ‘Mrs. Jones, do you know the defense attorney?’

She again replied, ‘ Why yes, I do. I’ve known Mr. Bradley since he was
a youngster, too. He’s lazy, bigoted, and he has a drinking problem. He
can’t build a normal relationship with anyone, and his law practice is
one of the worst in the entire state. Not to mention he cheated on his
wife with three different women. One of them was your wife. Yes, I know
him.’

The defense attorney nearly died.

The judge asked both counselors to approach the bench and, in a very
quiet voice, said, ‘If either of you idiots asks her if she knows me,
I’ll send you both to the electric chair.’

“Forgiving”

admin — Fri, 11 Dec 2009 04:58:15 +0000

Another day is passing. Life is not always easy when we have to make choices: Opportunity or challenge, lucky or risk, happiness or sadness…No one could guess what’s gonna happen until we have to take the chance.

If We have made the choice, why we regret some times? All I could answer here is we are uncertain about ourselves.

What we are going to do when time never come back?Yesterday was history that we could never change. So that, we should live for today, enjoy every moment we have and the past would be a good lesson for tomorrow.

You and me could make the others upset, let someone down,disappointed them sometimes. However, the truth is always naked . Background, culture, education,how a person being brought up often generate troubles, misunderstanding, hurt..

Forgiving is the best way that you and me can do. Leaving the sadness, pain, hurt…behind, thinking positive, doing what you haven’t done, enjoying what you haven’t had chance to do… Opening your heart and smiling to people. Tomorrow is a different day.

It is easy to say rather than to do since it’s human to make mistake. we are not god to easily forgive someone especially when that person ignored our feeling.

However we have to move on for our own sake. Forgiving does not mean you forget everything. It merely means accepting it as a part of human life.