WEEK 2a: RAISING FINANCE - DEBT

Debt

Borrowed money that must be paid back with interest.

Gearing ratio

A financial ratio that compares a company's borrowed funds to its equity.

Callable bond

A bond that can be redeemed by the issuer before its maturity date.

Debenture

A type of debt instrument that is not secured by physical assets or collateral.

Convertible bond

A type of bond that can be converted into a predetermined number of shares.

Deep-Discount bond (Zero-coupon bond)

A bond that is issued at a discount and pays no interest until maturity.

Short-term borrowing

Loans that are repayable within one year.

Medium-term borrowing

Loans that are repayable within 1 to 7 years.

Long-term borrowing

Loans that are repayable over a period longer than 7 years.

Interest cover ratio

A measure of a company's ability to meet its interest payments, calculated as net profit before interest divided by interest expense.

Loan covenants

Terms in a loan contract that require the borrower to fulfill certain obligations.

WACC (Weighted Average Cost of Capital)

The average rate of return a company is expected to pay its security holders.

Fixed interest securities

Debt securities that pay a fixed amount of interest at scheduled times.

Financial distress

A situation in which a company cannot meet or has difficulty paying off its financial obligations.

Optimum level of gearing

The ideal debt level at which a company minimizes its cost of capital and maximizes its value.

Current liabilities

A company's short-term financial obligations that are due within one year.

Long-term debt

Borrowings that are due for repayment in more than a year.

No dilution of equity

The maintenance of existing shareholders' ownership percentage when raising capital through debt rather than equity.