Question

Discuss alternatives available for companies to raise capital. Describe the pros and cons a company must analyze prior to going public.

Answer 1

Companies can arrange funds by various sources of finance. Some sources are called long term sources and rest are called short term sources. Long term sources fulfills the long term capital requirement of firm while short term sources are used for fulfilling working capital requirement of the firm. Long term sources of finance includes a exhaustive list some of them are as follows:

(1) Issuance of common stock (2) Issuance of Preferred stock (3) Issuance of bonds (4) Institutional loans (5) Owned funds (6) issuance of funds from international market like ADRs and GDRs

Before planning for raising of funds, companies must consider the following factors:

(1) cost of capital i.e fixed financial commitment in the form of interest and dividend

(2) Tenure of the payment

(3) dilution of ownership and control in management

(4) liquidity and capital raising expenditure or flotation cost

(5) Economic condition in the country

(6) state of capital market