Small Business Management - Entrepreneurship and Finance - Assignment Example

Small Business Finance Student’s Name Institutional Affiliation Introduction A small business is said to be privately or independently owned. It has a small number of employees, and it is not dominant in the industry in which it operates. The profits made in small businesses are not lucrative, and the growth rate is quite slow. The sales are not much and in most cases they have a low customer base (Spadaccini, 2007). Question 1 Asaleo Care limited is a company that deals with the manufacturing and distribution of hygienic items meant for family, office or any other hygienic purpose. These hygienic products include soaps, toiletries, paper towels, feminine heath commodities such as sanitary towels among others. Asaleo care Limited targets the households in promoting hygiene. It also carries out marketing of its products (Evans, 2014). Stratum Metals Company is a business that deals with mining and production of gold, copper and nickel metals. The metals are then sold to other companies or individuals who use it for several purposes. The company also carries out mining activities to acquire the gold (Australasian Business Intelligence). Question 2 Initially, Asaleo Care Limited was a partnership kind of business whereby it was jointly owned by Pacific Equity partners, the management and the Sweden's SCA. After the issuing of the prospectus, the business turned into a Company limited by shares (Evans, 2014). These partners consider the public company type of structure more appropriate since, as a public company, the business is allowed to issue its shares to the public. The burden of management is also lessened as the company is managed by one appointed manager. A public company also attracts many investors who bring in more capital into the company thus enabling it to grow (Spadaccini, 2007). Stratum Metals company initially existed as a private company. After the issuing of the prospectus, the company became a public company. The original owners find this turn more appropriate since, as a public company, the company can now issue its shares to the public thus increasing its shareholders. A public company is also appealing to the public and to potential investors who bring in more capital for growth and expansion. A public company also receives government support in the form of grants and subsidies and as thus, and it's unlikely that the company will get financial support (Australasian Business Intelligence, 2011). Question 3 The Asaleo Care limited issue was not underwritten whereas the Stratum Company limited issue was partially underwritten. Asaleo issued an IPO at an issue price of $1.55 to $ 1.80 for equity, and it intended to raise an amount equal to $690000000. Looking at the issue price, it is clear that Asaleo Care Limited intended to attract a large number of buyers so as to raise the money required (Evans, 2014). The duration for offer was also limited since it was closing on 20th June thus they did not see the need for underwriting. Stratum Metals limited made an offer for five new shares for each two held at a price of $0.01 for every new share purchased and one option for each two new shares purchased issued at a price of $0.02.The company intended to raise $3.036, and Petersons securities undertook partial underwriting of $84500 since this offer was conditional after reaching a minimum amount of $1.345 (Evans, 2014). Question 4 For both companies that are Asaleo Care Limited and Stratum Metals limited, the issuers have used under pricing as the signalling mechanism in their prospectus (Campbell, 2009). Asaleo care limited has priced its shares between $1.55 and $1.80 whereas Stratum Metals Limited issued its shares at 0.01 and 0.02.Another mechanism that the issuers used and that might have given a signal are the closing dates. Asaleo Care Limited issue closed on 20th June whereas Stratum metals Limited issue closed on 31st December (Gregoriou, 2006). The reason the issuers used these signals in because of uncertainty and also because of information asymmetry that exists. People on the inside maybe aware of certain factors and information that the outside investors may not know or be aware of (Gregoriou, 2006). The mechanism may also signal that the next IPO offer maybe more lucrative (Campbell, 2009). Another signalling mechanisms that issuers use include retention of a large amount of capital ownership by the inside investors. This signals that the future price maybe more lucrative and hence subject to large gains (Campbell, 2009). Hiring of a highly qualified group of bankers and auditors, maybe another signalling mechanism issuers use when issuing an IPO (Gregoriou, 2006). This indicates that the IPO to be issued is lucrative and thus it requires high expertise in determining the IPO details such as price. Finally, issuers may also disclose the details of the IPO before the stated deadline with the hope of reducing the money available on the table (Campbell, 2009). Question 5 The two issuers that are Asaleo Care Limited and Stratum Metals Limited do not at all meet the definition of small of small businesses before or even after the listing with ASX. Small businesses as earlier defined in the introduction are mostly independently owned and operated, and they are not dominant in the field the industry in which they operate (Hatten et al., 2012). They have few employees who are not that much highly qualified. They have low sales volume, and their profits are not much (Spadaccini, 2007). Mostly they are formed for profit purposes. They have a low customer base since most-potential customers opt for the products of larger established companies in the industry (Hatten et al., 2012). Asaleo Care limited existed as a private joint ownership venture before the listing but even then, it still made it big in the industry (Evans, 2014). The company employs more than one thousand workers who were located in Australia, New Zealand and Fiji. Asaleo Care Company had its products selling across the world, and its profits increased from $47.6 in the year 2012 to $61.5 in the year 2013 (Evans, 2014).The company is expecting a 2.7% sales increase this year. Asaleo has big clients for its products, such as Woolworths Limited that is also a big company. Stratum Metals Limited likewise is not a small business. It has a big number of employees working on its goldmines and also in the production sector (Australasian business intelligence, 2011). Its profitability ratio for the last five years has shown a great increase with 14.36 growth rates in the last five years. Stratum metals Limited has also opened a subsidiary company. Considering the above details, it is clear that the two issuers do not fall in the category of small businesses (Spadaccini, 2007). References Campbell, D. (2009). International securities law. Salzburg. Austria: Yorkhill Law Pub. Evans, S. (2014, June 2). Asaleo Tips $70.6M Profit as IPO Nears. Australasian Business Intelligence. 1, 1-40 Gregoriou, G. N. (2006). Initial public offerings: An international perspective. Oxford: Butterworth-Heinemann. Hatten, T. S., Hatten, & Timothy S. (2012). Small business management: Entrepreneurship and beyond. Mason, OH: South-Western Cengage Learning. Spadaccini, M. (2007). Business structures. Irvine, CA: Entrepreneur Press. Stratum attracts healthy level of interest. (2011, September 22). Australasian Business Intelligence, 1, 1-30. Read More