Page 55 - DLIS104_MANAGEMENT OF LIBRARIES AND INFORMATION CENTRES

Management of Libraries and Information Centres

Notes

Did u know? Interest rates can vary from organisation to organisation and also according
to purpose.

Sources of funds

A company might raise new funds from the following sources:
The capital markets:
1. new share issues, for example, by companies acquiring a stock market listing for the first
time
2. rights issues:
Loan stock
Retained earnings
Bank borrowing
Government sources
Business expansion scheme funds
Venture capital
Franchising.

Ordinary (equity) shares

Ordinary shares are issued to the owners of a company. They have a nominal or ‘face’ value,
typically of $1 or 50 cents. The market value of a quoted company’s shares bears no relationship to
their nominal value, except that when ordinary shares are issued for cash, the issue price must be
equal to or be more than the nominal value of the shares. Deferred ordinary shares are a form of
ordinary shares, which are entitled to a dividend only after a certain date or if profits rise above a
certain amount. Voting rights might also differ from those attached to other ordinary shares.
Ordinary shareholders put funds into their company:
by paying for a new issue of shares
through retained profits.
Simply retaining profits, instead of paying them out in the form of dividends, offers an important,
simple low-cost source of finance, although this method may not provide enough funds, for
example, if the firm is seeking to grow.
A new issue of shares might be made in a variety of different circumstances:
The company might want to raise more cash. If it issues ordinary shares for cash, should the
shares be issued pro rata to existing shareholders, so that control or ownership of the
company is not affected. If, for example, a company with 200,000 ordinary shares in issue
decides to issue 50,000 new shares to raise cash, should it offer the new shares to existing
shareholders, or should it sell them to new shareholders instead?
If a company sells the new shares to existing shareholders in proportion to their existing
shareholding in the company, we have a rights issue. In the example above, the 50,000
shares would be issued as a one-in-four rights issue, by offering shareholders one new
share for every four shares they currently hold.
If the number of new shares being issued is small compared to the number of shares
already in issue, it might be decided instead to sell them to new shareholders, since own-
ership of the company would only be minimally affected.
The company might want to issue shares partly to raise cash, but more importantly to float’
its shares on a stick exchange.
The company might issue new shares to the shareholders of another company, in order to
take it over.

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