Research Paper on Business Financing

Features of Common Stock and Preferred Stock

A common share indicates that a person owns a section of the corporation. The ownership gives the investor some power for control in the business. Therefore, the stockholder can choose officers for the board meetings, thus ensuring all strategies are followed and useful company modification ideas are nominated (Gilson, and Schizer, 2013). The individuals possessing the common stock are measured as the low-level owners who access resources after the payment of the debtholders. Preferred stock shows ownership, however, the proprietorship gives new wages and properties in than the common stock. The preferred stock ensures that surpluses are paid before the payment of the corporate shareholders, the voting rights are absent in this case.

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Characteristics of Long-Term Debt

A long-term debt usually has a principal balance that is higher than the obligations of the short-term debt. This is due to the more top purchases made by the individuals that collect the lasting dues. The long-standing debts usually have lower rates of interest in comparison to the short-term contributions. Collateral requirements are essential when it comes to the lasting finances; this is done for security purposes (Poitras, 2010).

Distinguish Between Floating Rate and Fixed Rate Corporate Bonds

The fixed rates usually have set coupon rate bonds while the floating rates have the adjustable coupon rate bonds. The interests in a mortgage that has fixed charges maintain a constant phase for the entire duration of the financing. The stakes in credit cases with floating rates fluctuate over the period of the mortgage; the floating tariffs frequently vary with the general market price within the prime rate or the underlying index (Gabaldon, 2016).

Stages in Venture Capital Financing

There are five stages that are incorporated in the venture capital funding the steps are:

Seed capital- at the scene the heads of the startup idea have limited monetary stability and are more engrossed in convincing the stockholders of the significance of providing VC support to the concept under analysis. Startup investment- the companies, have sample merchandise, and they begin advertising and marketing their products and obtain clients (Hellmann, and Puri, 2012). The early/first/second phase funds- the financial support gained at the stage is invested in the production and manufacturing facilities as well as in sales and marketing. Expansion/second/third step capital- the phase is characterized by exponential growth, with increased differentiation and diversification of the products processed. Pre-pubic/mezzanine/bridge stage- the period is associated with the publicity of the company as well as its products. The capital obtained at this stage can be essential in supporting the paces toward the intended public offering (Gilson, and Schizer, 2013).

Methods Used to Issue New Securities

Initial Public Offer (IPO) or Public Issue - the corporation provides a catalog to the community and appeals for subscription offers, the interested shareholders apply for the appropriate securities that they are ready to purchase. Private Placement- the issuing business privately trades its securities to more or one recognized brokers who later on sell the securities to their associates and clients. The method is usually quite economical and convenient (Gabaldon, 2016). Sale via the intermediaries- the distributing company selects mediators such as the financial institutions, stock brokers and commercial banks to help in discovering a market base for the novel safeties on a contractual basis (Poitras, 2010).

Role of Investment Banks in the Underwriting Process

Investment banks are meant to function as an intermediate between the corporations and the investors during the underwriting procedure. The banks raise funds from the stockholders in place of the firm via their IPOs. The savings groups also evaluate the company and agree on the price the stocks are to be sold (Hellmann, and Puri, 2012).

Uses and Sources of Cash

Currencies are useful in purchasing products, that is money can be essential in reimbursing lasting liabilities or accumulated expenses. There are various sources of capital, and they include; Equity, assets, and liabilities. That is when one issues equity or sells a resource such as equipment, cash is usually gained and if present liabilities like the accrued or payable accounts increase their expenses capital is obtained (Poitras, 2010).

Characteristics of the Operating Cycle and the Cash Cycle.

The operating sequence comprises an average period from the gaining of catalog and reception of money from the sale of the inventory. Therefore, the cycle has a short operation period to ensure quick profits from the stock of the firm. However, the series takes a long time in periods of commercial downtown than in phases of economic development. The Cash cycle involves the number of days needed for a corporation to change their assets to capital flows (Hellmann, and Puri, 2012). Therefore, the measure ensures the monetary stability of a business as it involves a series of currency conversion procedures by reflecting the duration taken in the business progressions for higher profits. The sequence comprises a shorter period for cash conversion.

References

Gabaldon, T. A. (2016). Like a fish needs a bicycle: Public corporations and their shareholders. Md. L. Rev., 65, 538.

Gilson, R. J., & Schizer, D. M. (2013). Understanding venture capital structure: a tax explanation for convertible preferred stock. Harvard Law Review, 116(3), 874-916.

Hellmann, T., & Puri, M. (2012). Venture capital and the professionalization of startup firms: Empirical evidence. The journal of finance, 57(1), 169-197.

Poitras, G. (2010). Valuation of Equity Securities: History, theory, and application. World Scientific.