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What finance options are open to a fast growing UK Listed Maritime Company that is looking to expand - Assignment Example

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What finance options are open to a fast growing UK Listed Maritime Company that is looking to expand

The market failure may arise from imperfect information fuelled by volatile economic conditions where lenders become risk averse. #1 Critical evaluation of the difference between debt and equity from the perspective of a UK listed company Listed companies have a broad range of financing options available to them, which include debt and equity (Graham and Smart, 2009, p. 44). Companies utilize a blend of debt and equity funding to finance their operations. Companies bearing high credit ratings can borrow money at low interest, besides selling shares at a premium. Debt refers to money raised from banks and bondholders, while equity refers to money raised from the shareholders. In return for investing their money in a company, shareholders are rewarded with a percentage of the company (a share). Equity financing refers to issuing additional shares of common stock to investors. The issuing of common stock decreases the previous stockholders’ percentage of ownership. Debt financing is often accompanied by strict conditions or covenants, besides having to pay interest and principal on stipulated dates. Debt Sources of Financing Debt financing incorporates collateralized bonds, leases, bank overdrafts, debentures, lines of credit, and bank loans. A bond refers to a written promise to pay back a certain amount of money on a stipulated date in the future. In the interim, bondholders receive interest payments at fixed rates on stipulated dates. Debt financing typically includes an interest rate of about 3-8% depending on the debt and the arrangement. The face value, maturity date, and coupon rate are evaluated at the time the bond is issued (Morris, McKay and Oates, 2009, p. 328). The shareholders assume all the risks and rewards from debt financing. As a result, debt financing can be relatively less expensive compared to equity finance depending on the expectation of the equity financiers. Equity Sources of Financing Companies usually seek capital from investors through the issuance of either common or preferred shares. Equity financing may also incorporate employee stock options. Equity funding does not incur interest or have to be repaid. Debt financing is usually more risky compared to equity financing, although equity financing is more expensive (Gleyberman, 2009, p. 8). Some of the advantages of debt financing include interest payments being tax deductible and that there is no dilution of ownership to the existing equity holders. The disadvantages of debt financing include the fact that the debt holder has priority over the company assets during liquidation. Besides, in cases where the investor doubts the capability of the company to meet interest payments, investors may demand higher interests to compensate for the uncertainty. In addition, there are several covenants associated with debt instruments that may constrain a company’s freedom of action (Albrecht, Stice, Stice and Swain, 2011, p. 507). In debt financing, loan repayment should be done on a predetermined date even if the business is in a loss. The cost to the company in debt financing is known beforehand. The cost to the company in debt financing is straightforward to predict, plan, and repay. Equity financing has several advantages such as no current payments due and no preferential rights on the company’s assets. The process of raising funds through equity ...Show more


Listed companies refer to companies which equity is recognized by a stock exchange such as the London Stock Exchange. Listed companies usually bear a value placed on their equity as their shares are traded through the exchange system. …
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What finance options are open to a fast growing UK Listed Maritime Company that is looking to expand essay example
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