The definitive guide to Managing the Numbers
The definitive guide to Managing the Numbers
The definitive guide to Managing the NumbersThe definitive guide to Managing the Numbers

Chapter 19 – Financing And Investing

‘The public be damned! I’m working for my stockholders.’
William H. Vanderbilt

Overview

This chapter takes a rather interesting journey through sources and uses of finance, and – the flip side of the coin – investment. Apart from anything else, it will help you decide how to use a cash surplus or how to finance a deficit. It should also be useful if you are making investments in other companies, from either a corporate viewpoint or as a personal investor.

Mastering financing and investment

After reading this chapter, you should be able to answer the following questions:

  • Name three sources of each of short-term, medium-term and long-term finance.
  • What are debt instruments? What sets them apart from other borrowing? Why would a company borrow by issuing bonds? Who would lend the funds to the company?
  • What happens to the market price of a bond if interest rates fall?
  • What is equity? Does it have to be repaid? Where is it traded? What is a stock split?
  • How much money would a stock split raise for the company?
  • Why might share prices move even when nothing fundamental has changed at the issuing company?
  • How do you use share prices to value a company? Why is the price earning ratio important?
  • How could one company attain control over another?
  • How could one company use an investment in another to cook the books?
  • Which involves greater risk for an investor (all things being equal), debt or equity?
  • Why is equity more costly than debt for the company receiving the funds?
  • How would you calculate your cost of capital?
The Definitive Guide to Managing the Numbers