Sources of Capital

This chapter describes grounding in finance or accounting, particularly the process by which companies issue new ordinary shares, and the purchase or sale of shares in a Merger and Acquisition transaction. A good rule of thumb to keep in mind is that long‐term assets such as plant and equipment should be financed with long‐term liabilities (long‐term debt or equity). Short‐term assets such as stocks or debtors generally can be financed with short‐term liabilities. Debt securities generally pay a periodic return to investors and return the initial investment to the holder on a predetermined date. Companies and financial institutions also issue long term debt to finance capital investment and operations, known commonly as bonds, notes or debentures. The interest rate payable by these institutions varies based on the credit risk and maturity of the bonds. When the share price attached to the bond is sufficiently high or ‘in the money’, the convertible begins to trade more like equity. This chapter also describes the primary forms of debt and equity that are available to UK corporations.