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Financial Strategy and planning - Essay Example

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Rights issue is the issue of shares by an existing company to its shareholders. When a company makes an additional issue of shares, the existing shareholders have the right to subscribe such shares on account of their pre-emptive rights. This allows them to accept or reject the subscription fully or partially the issue…
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Financial Strategy and planning
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Download file to see previous pages The decision to purchase or not to purchase rights shares ultimately rest upon the company's performance like an ordinary issue purchase decision. The likely impact of rights issue upon the market value of share, earnings per share and wealth of shareholders depend on the future prospectus of the issuing company. However, unless the company performs better, it is undisputedly say that nothing will gain by the shareholders out of rights issue.
This type of financing is preferred when the company needs to fianc its expansion needs and at the same time it does not like to dilute its ownership. Unlike ordinary shares, this type of shares does not offer voting rights to the holders. Therefore, preference shareholders do not have any voice or say in the company's management. Therefore, it does not result in the dilution of ownership of ordinary shareholders. However, preference share holders are entitled to a fixed periodical dividend and the repayment of principal after a stipulated period of time. This may result in a situation where the company will be left with low distributable profit and thereby reduced earnings per share. This may ultimately lead to adversely affect the market value of ordinary shares.
Loan stock is a kind of fixed income security. Loan stock is issued by a company against the loan granted by another. The holder gets fixed periodical return coined as interest and principal after the maturity period. Loans stock may be of two types, namely secured and unsecured. The secured loan stock is similar to an ordinary loan for which the borrower offers collateral to guarantee the repayment of the loan. But an unsecured loan does not have any kind of collateral with it. A secured loan stock, when an entity is issued is like debenture/bonds. The issue of loan ...Download file to see next pagesRead More
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