Professional Documents
Culture Documents
11/06/2007
Accouting numbers market figures agency problems 3 kinds of reports : GAAP prepared statements (the only public one) Tax reporting Internal mgt EU US : common shares can not be payed in the US Dividend interest : dividends are not tax deductible 5 kinds of ratio liquidity (quick, current) : meet short term obligation asset mgt : inventory turnover, days sales outstanding, asset turnover (log-term also) debt mgt ratios : debt ratio, times interest earned, fixed charge coverage (+lease expense !) profitability ratios : net profit margin, return on assets, ROE market ratios : EPS (common stock), dividend yield, payout Cash : operating cycle : days sales outstanding + days inventory
11/06/2007
External ( internal funds) o Public offerings o Private placements : low profile, direct negociation but intrusive, risk, venture capitalists may take control o Bought deal o Short-form prospectus : prompt offering prospectus (POP) Underwriting o out-clause o accuracy of prospectus (not truthfulness) o road shows o red herring : preliminary prospectus o careful of junk bonds (milken) and reputation o IPO are always undervalued (25 %) o Syndication o Costs : big firms = 3-10 % ; small = up to 20 % common shares cost more than prefered or debt to issue common shares issues o residual right but limited liability o proxy fights o voting rights o preemptive rights o price falls around 2-3 % after public issues, increases after private, declines when new debt o ex-rights day, rights offering o consequences of listing
3. Liability Management
Why debt ? Interest is tax-deductible Inflation expectations Leverage Problems of equity
11/06/2007 03:35:00
concepts : bond indenture trustee : intermediation secured o mortgage open-end o equipment trust certificate unsecured o debenture, subordinated debenture o income bonds (smell of death) call provision sinking funds serial bunds callable or convertible price = % of face value junk or high yield bonds securitization interest rate swaps : separating principle and interest payments plain vanilla : same currency, fixed to floating, principal =
11/06/2007
which part LT / ST ? which part debt / equity ? Modigliaini & Miller model no difference between common stock and LT debt but if not taxes, no transaction costs, if invt fixed with taxes debt is the best way ! financial distress costs agency issues costs information to investors o share is undervalued o credible signal or future prospects Myers pecking order theory o Firms prefer internal financing