Introduction to Corporate Financing

.: Companies can sell their stock to public to first time, called IPO (Initial Public Offering). Then, if companies still add outstanding shares, its become Season Equity Offering.

Firm have three broad sources of cash: Internal Fund, Equity, Debt

  • Internal Fund. Many company more to take internal fund to do financing because minimize the cost than they must issued shares

>Internally generated funds=cash reinvested in the firm=depreciation plus earnings not paid out as dividends

>Financial deficit=difference between the cash companies need and the amount generated internally.

.: when the company announced it would increase the shares outstanding, it makes a negative view because investors think if the company’s stock price is still under value, the company will not increase the number of new shares. it can be concluded that companies that increase or issuing new shares means the price of their stock is in position over value.
in others hand, investors won’t share the positive view to others investor. if the company issued new stock means the company wanted to share a higher risk (the company’s prospects  is not good)
  • Equity Issues. 1 some large companies are owned by one investor, 2. the others company composed of many different investors (per share)
ex: Dow hasdow has 650.000 different investors. If there are 1.167 billion outstanding shares, ownership of the investor per share to the company is 1/ 0,000000085%

Common Stock

  • Treasury stock= outstanding stock has been repurchased by the company.
  • Issued shares= amount of shares that have been issued by the company.
  • Outstanding shares= share that have been issued and are held by investors.
  • Authorized share capital= maximum number of shares that can issued by the company
  • Par value= value of shares
  • Additional paid-in capital= difference between price sell and par value of stock.
  • Retained earnings= earnings not paid out to shareholders as dividends.

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