Ch 16 Financing a Business

short-term debt

must be repaid with interest within a year

Dividends =

Shares x face value of a share

security

Something of value pledged as assurance of the fulfillment of an obligation.

Retained earnings

profits that owners do not take out of the business. earnings reinvested in the business to replace equipment, add new facilities, or serve as financial protection

preferred stockholders

typically do not have voting privileges in a business

sale of stock

Corporations can raise additional funds through the _________________________________,

mortgage bond

A bond secured by specific long-term asset of the issuer.

convertible bond

A bond that allows a bondholder to exchange bonds for a prescribed number of shares of common stock

debenture

A bond that is not secured by assets but based upon the faith and credit of the corporation that issues it.

factor

A firm that specializes in lending money to businesses based on the business's accounts receivable.

ESOP (employee stock ownership plan)

A plan that allows employees to become owners of the company they work for through the purchase of stock.

crowdfunding

A strategy for funding a business idea with small amounts of money from many people.

investment bank

An organization that helps businesses raise capital through the sale of stocks and bonds.

owner capital exceeds debt capital

Banks and other types of lending institutions usually will not loan money to a business unless

issuing bonds

a way to obtain long-term debt capital

2/10, net 30

Credit terms offered by a business that indicate a bill must be paid in full within 30 days and offers a 2% discount for paying a bill within 10 days

sales finance company

Firm that provides capital to a business based on installment sales contracts.

Personal assets invested and not invested in the business, and mortgaged personal property

If a sole proprietorship fails, these assets will be lost

Equity capital

The investment made in a business by its owners is called

Book Value per share =

Net worth / shares of stock outstanding

line of credit

The authorization to borrow up to a maximum amount for a specified period of time.

term loans

a common method to purchase expensive equipment

par value

a dollar value shown on a share of stock

trade credit

a form of short-term financing

underwriter

an organization that assists a business to raise capital through the sale of stocks and bonds

common stakeholders

have the right to vote at annual meetings, at one vote per share of stock owned

influence of capital contributors, the cost of capital, and interest rates

influence how companies decide how to get the capital they need

venture capitalists

they must get a percentage of ownership in the company in return for their investment