Sources of Long-term Finance: Equity Finance

Flashcards covering key terms and definitions about sources of long-term finance, focusing on equity finance.

Equity Finance

Capital paid into or kept in the business by shareholders, considered long-term capital that carries the greatest risk and attracts the highest returns.

Debt Finance

Money invested in the business by third parties, usually for a shorter period than equity, carrying a lower risk and lower return.

Ordinary Shares

The main source of equity finance representing ownership in a company, with rights to participate in profits and voting.

Preference Shares

Hybrid securities that possess features of both equity and debt, usually carrying a fixed rate of dividend and having preferential rights regarding dividends.

Cost of Capital

The expense incurred by a firm to raise equity or debt capital, influencing financial decisions.

WACC (Weighted Average Cost of Capital)

An average representing the expected return on all types of capital used by a firm, weighted according to the proportion of each type.

Retained Profits

Earnings that are reinvested in the business rather than paid out as dividends, a source of internal financing.

Angel Investors

Wealthy individuals or groups who invest large amounts at early stages of a company’s development, expecting substantial returns.

Venture Capitalists

Individuals or firms that invest in companies with high growth potential, often seeking significant ownership and involvement in management.

Crowdfunding

A method of raising capital via online platforms, allowing individual investors to contribute small amounts towards an investment.

Rights Issue

An offer to existing shareholders to purchase additional shares at a set price, proportional to their current holdings, to raise capital.

Scrip Dividend

A dividend payment made in the form of additional shares instead of cash, preserving the company's liquidity.

Initial Public Offering (IPO)

The process by which a private company offers shares to the public for the first time to raise capital.

Private Placement

The sale of securities to a small number of private investors rather than the public, typically used for smaller issues.

Tender Offer

A method in which an issuer sets a minimum price for shares and invites investors to bid for them, allotting shares to the highest bidders.