Finance is a vast area of discussion that requires one's dedication and interest to understand it better. Under finance, there are major issues like corporate financial policy which has a lot to be studied. The corporate fiscal policy is defined as an innovative corporate finance course that mainly touches on equity and debt management, for example, the descriptions of types of debt and equity, distribution policy and security issuance, for instance, the design of capital structure and securities that controls information problems. The sub-topics in securities and financial policy can be discussed in details as below.
Debt and equity management.
Debt and equity management are among the most important resolutions to be made by managers or investors who needs money to fund their business procedures. Debt equity is known to be the primary source of capital for most businesses though they both have their advantages and disadvantages. Debt management takes the system of loans to be repaid over time that is they must be paid with interest. Businesses or investors can borrow money for less than a year (short term) or more than a year (long-term). The primary sources of debt financing are mostly government agencies and banks, for example, the Small Business Administration.( Berger, Allen and Scott 12).These sources offer businesses tax advantages since the interest they pay on loans usually deductible.
The company's future responsibility of repayment of loan can also be limited through borrowing since lenders do not get any title share in the business.
Some of the disadvantages that come with debt financing or management include Difficulty in making regular loan payments for new business that have irregular cash flow. Through this, debt financing may leave the new company exposed to any economic downturns or attention rate rambles. Carrying too much debt may also be a disaster since it might increase the perceived risk that is always linked to the companies hence creating an unappealing atmosphere to new clients leading to the reduction in their ability to create more money in the coming days.
On the other hand, equity controls the procedure of capital acquired from stockholders in exchange of possession in the corporate. Resources like this can be obtained from family members, friends, and relatives of the business owners, venture capital firms of the so-called wealthy angel investors. Equity has its advantages and disadvantages as well. Its main advantage is on corporate not being able to repay the capital. The investors are in a position to reclaim their investment from their future profits which can be increased by the credibility of a new business. Equity management's main disadvantage is that the investors have to become part-owners of the corporate hence making them have a say in any business decisions.
Equity investors, in other words, are in need of partners and investment as well to prevent them from being lenders. Through this act, the equity investors can maintain their full control of the business. It because over-reliance on equity financing or management may show that the company is not using its money in a positive manner. Therefore one can conclude that debt and equity financing are necessary for corporates when it comes to acquisition of capital to support their businesses. ( Koller et al., 499)
Before one can decide on either to choose on debt management or investment management, he/she has to look at the long-term goals of the corporate as well as the amount of control the managers would like to maintain. According to some experts, businesses uses both equity and debt management in a commercially suitable ratio. This ratio,( debt-to-equity ratio) is believed to be the key factor in determining whether the managers are running their businesses in a practical manner or not. The rate is said to vary by companies and industries.
Security issuance
Security is just a financial asset or any form of the financial instrument according to corporate fiscal policy while issuance is what provides the security, for example, a company. Security can be into three broad categories:
Debts such as bills, pledges, and debentures,
Equity safeties such as common bonds
Byproducts such as onwards, stocks and swaps.
Securities may be certificated (electronic) or non-certificated (book entry). The certificates may be the carrier which means they permit holders to all rights of security through holding the security. The certificates can also be recorded meaning they allow the owner to every right only if they perform on the safety record conserved by the issuer. (Huebner 160).Securities may also be grouped into different categories such as currency of quantity, ownership privileges, and terms to ripeness, a degree of fluidity, income expenditures, tax management, credit evaluation, industrial area, section or state, souk capitalization.
Security issuance considers very many things before issuing capital for any investor, for example, the look at the new money.
Securities are always known to be a traditional way of raising new capital by the commercial enterprises since they can be used in replacement of bank loans due to their pricing and market demands for various characteristics. One of the disadvantages of bank lending as a security issuer is that banks may seek the haven against nonpayment by the borrower through broad financial agreements. Through these security measures, capital can be provided by investors and business owners who purchase securities on original issuance. Alternatively, the government also issue securities when need to expand liability arises.
Another issue being considered in security issuance is the type of holder. The investors in securities issuers may trade with different people for investment purpose apart from the way of handling business. The most important issues in investment are the wholesale regarding volume. For example, this could be through institutions which act on their account on their clients' behalf. Some of the most valued institutional stockholders include insurance companies, investment sets, pension capitals and other managed resources. Speculation is also another critical area for security issuance to stress. The traditional financial purpose of obtaining securities is speculation with the view of getting income and realizing the capital increase.
As discussed earlier in this paper, debt and equity are among the categories of securities issuance. They form the major part of security issuance. Hybrid is also one of the types of security issuance. It is the combination of both debt and equity securities. Under Hybrid, there are things such as preference shares which form a transitional class of safety among debt and equity. Convertibles are also bonds which can be transformed into a universal standard of the distributing company. (Ross et al., 66).
Such convertibility may, however, be forced in cases of equivalent being callable bond and the issuers refer to it as bond. The bondholder, in this instance, has one month to convert it, and if he/she delays, the company will decide to give him/her call price which sometimes is less than the price of the converted stock. Equity warranty refers options which are provided by the company to allow the holder a warrant for purchasing the given shares at a given amount of time. When the warrant holder exercises it, he will be told to pay some sum of money directly to the company, and the owners of the issuers will issue new shares to the holder.
Distribution policy
Shipping policy is the promotion device that links manufacture with consuming. Through this definition, one can determine the way people are going to make any product arrive at the last client or consumer. (Miller, William and Stephen 10).This process will depend on the supply chain link we are at; that is the producer, retailer or intermediary. There are different kinds of channels; they include Ultra short channel meaning from the manufacturer to the consumer directly without any intermediary, short channel meaning only one intermediary that is the wholesaler or the retailer, long chain involving two intermediaries. It the wholesalers and the retailer and lastly very long chain concerning the introduction of any other additional intermediaries, for example, the purchasing departments, commercial agents, and many others.
It is, therefore, a policy that outlines how data and messages can be shared and distributed in all various divisions and different departments of the company. The distribution policy can at times affect how documents of a particular company are filed because it determines how and where accurate information and products are dispersed both within and outside the business. Within the organization, data and products are sometimes supposed to be made available to personnel who will need them during risks management such as leaks to the outside. On the other hand, external distribution follows many different chains to get information, products, and services to end consumers. These chains must be determined carefully to protect interests of the investors and the organization as well.
Therefore distribution policy can be said to be in a position to control the risks of leaks information or unauthorized access and may also help different companies to track down origins of problems by reducing the number of people who see certain materials that concern the company's relevant documents.
Work cited
Berger, Allen N., and W. Scott Frame. "Small business credit scoring and credit availability." Journal of small business management 45.1 (2007): 5-22.
Huebner, Thomas, et al. "The Convergence Security Infrastructure." Enhancing the Internet with the CONVERGENCE System. Springer London, 2014. 135-163.
Koller, Tim, Marc Goedhart, and David Wessels. Valuation: Measuring and managing the value of companies. Vol. 499. John Wiley and Sons, 2010.
Miller, William R., and Stephen Rollnick. Motivational Interviewing: Helping people change. Guilford Press, 2012.
Ross, Stephen A., Randolph Westerfield, and Bradford D. Jordan. Fundamentals of corporate finance. Tata McGraw-Hill Education, 2008.
