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Summary Chapter 14: part 1
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This summary is about chapter 14, part 1 of B&F
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Chapter 14: Introduction tocorporate finance
1. Creating value with financing
2. Patterns of corporate financing
Sources of funds (14.2)
In general, companies have 3 main sources of cash
Profits from the past
Selling shares (“equity”)
All kinds of loans and other form of debt
The difference between the cash a company needs, and the plowed back profits is called:
Financial deficit
Types of securities
• Equity
- Common stock
- Preferred stock
• Debt
- Commercial paper (= no collateral)
- Debentures (= bonds)
- Guaranteed notes
- Eurobond
- Sterling notes
- New Zealand dollar notes
- Bank loans
- … Look online for numerous other kinds of debt
, Sources of funds
Going under 0. Why?
They buy back the
shares and buy the loans
Sources of funds – Debt ratio
Patterns of corporate financing
Firms may raise funds from external sources or plowback profits rather than distribute them to
shareholders
Should a firm elect external financing, they may
choose between debt or equity sources
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