Question

4. Review the following list of financing terms. Define eleven (11) of the 15 terms.

a. Authorized share capital

b. Outstanding shares

c. Treasury shares

d. Majority voting method for the BOD

e. Cumulative preferred stock

f. Sinking fund

g. Subordinated debentures

h. Secured bond

i. Callable bond

j. Zero-coupon bond

k. Rights offering

l. Protective covenants

m. Private placement

n. Warrants

o. Convertible bonds

Answer 1

a. Authorized share capital - Authorized share capital is the term used to describe a company's capital which comprises every single shares of every category that a company could issue if it needed or wanted to. It is stated in the Memorandum or in its article. It is often not fully used by the management in order to leave room for future issuance of additional stock by the company.

b. Outstanding shares - Outstanding shares are those shares which are available with the shareholders of the company at the given point of time after excluding the shares that was bought back by the company and it is shown in the Owner's equity in liabilities side of the balance sheet of that company.

c. Treasury shares - When the company bought back its issued shares in order to reduce the number of share outstanding the open market, then those bought back share are called Treasury shares. These are also called as Reacquired shares.

e. Cumulative preferred stock - Cumulative preferred stocks are that class of stocks that where undeclared dividends are allowed to accumulate until they are paid. These stockholders has the right to a specific amounts of dividends each year. Also they are entitled to receive cumulative dividends if any dividend payment is missed in past.

f. Sinking fund - Sinking fund is a type of fund which is created and set up purposely for repaying debt. The owner of this account set aside the certain amount of money regularly and uses it only for a specific purpose.

g. Subordinated debentures - Subordinated debentures are the unsecured loan or bonds that rank below other, more senior securities with respect to claim on assets or earnings. These are much riskier than unsubordinated debentures.

h. Secured bond - Secured bond are that bonds that requires the issuers to pledge specific assets as collateral in case of default. These bonds are more popular with the government or businesses that are less likely to be able to pay their debts in the future.

i. Callable bond - Callable bond are the redeemable bonds that provide the issuer of the bond with the right but not the obligation to redeem the bond before its maturity date.

j. Zero-coupon bond - A Zero-coupon bond is a security that is sold at a discount and does not pay any interest payments to the bondholder. These bonds are sell for less than its face value and does not make coupon payments during its life.

k. Rights offering - Rights offering also known as Right issue means when a company offers existing shareholders the opportunities to buy additional shares of company stock in proportion to the numbers they already own before any new shares are offered to the public.

l. Protective covenants - Protective covenants is that part of an indenture or loan agreement that limits certain actions a company may take during the term of the loan to protect the interest of the lender.

m. Private placement - Private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than on the open market. It is the alternative to IPO for raising the capital for expansion.