External Finance (Long-term debt and equity)

Role of Finance Management

1. S: strategic role of financial management
2. Objectives:
- P: profitability
- L: liquidity
- E: Efficiency
- G: Growth
- S: Solvency
3. I: interdependence with other KBF’s

Influences:
Source of finance:
1. Internal-
 Owners equity
 Retained profits
2. External-
 Debt (short term)
 Overdraft
 Commercial bills
 Factoring

Q. Distinguish between a debenture and an unsecured note.

Investor lends money to company and in return company issues debenture with promise to
make regular interest payments for defined term and then repay loan at particular date in
future. An unsecured note is a loan for a set time frame from investors and not secured
against business’s assets. Debenture helps with solvency of business, whereas unsecured not
secured to an asset of a business and is completed quickly. However, a disadvantage that
debenture holds is that it is timely to create a prospectus for investors to know how
company will use funds, while unsecured notes have high interest rates and the loan is
limited to $50,000.
Issues of ordinary shares:
1. New Issue: refers to a security that has been issued and sold for the first time on a
public market, e.g. the Australian Securities Exchange.
2. An IPO is the most common use, where a private company lists on a stock exchange
for the first time to raise funds by selling shares to the public.
3. Companies use IPOs to raise money that can then b e used to help grow the
business.