Corporate Financing Methods and Securities

Long-Term Leasing and Renting

Leasing financing is a system whereby a company can incorporate fixed assets in exchange for lease fees. This process involves three operators: the client who needs the asset, the leasing firm that finances the acquisition and delivers the asset to the customer company in exchange for rent, and the company that manufactured or provides the asset.

Renting is the rental of movable and immovable property under a long-term contract. The tenant agrees to pay a fixed monthly income for a specified period. The leasing company is committed to providing these services: facilitating the use of the asset, maintenance, comprehensive insurance, and the option of ending the contract, replacing the equipment, or renewing the contract.

Short-Term External Financing

Short-Term Bank Loans

Two modalities:

a) Overdraft: This is a source of financing that allows using a checking account balance up to a certain amount, but the interest rates are higher.

b) Credit account: When a company wants to have financing available for possible future needs but doesn't know the exact quantity needed, it can request a credit account. This consists of signing a contract with a financial entity to make funds available to the company with a current account limit.

Trade Credit

This financing is automatic when the company obtains goods on credit from suppliers.

Discounting Bills

The company can discount bills it holds from a portfolio of clients before their maturity. This represents a cost for the company since it has to pay interest on the amount the bank advances from the day of the discount to the maturity date.

Factoring and Spontaneous Sources

Spontaneous sources are those that do not require prior negotiation.

Securities Markets and Corporate Finance

To meet funding needs, companies can create financial assets. These assets serve as a means of maintaining wealth for the owner and a source of funding for the issuer.

Types of Financial Assets

Fixed income: These provide flows over time, such as obligations (bonds).

Equity: These generate flows that depend on the uncertain benefits of the company, distributed as dividends, and the variation in the value of the title (share).

The Securities Market

This is the market where financial assets (fixed and variable income securities) are traded. Two types:

Primary Market

Where a company issues securities to be subscribed by investors to obtain funding.

Secondary Market

A market where previously issued securities are bought and sold.

Specific Market Operations

Initial Public Offering (IPO)

This is the operation in which a company offers shares for sale to the public for the first time.

Secondary Public Offering (SPO)

A public offer for the subscription of new shares issued as a result of a capital expansion.

Takeovers

An operation in which one or several individuals or companies offer to buy shares from the shareholders of a listed company in exchange for a price.