Share capital and debt
Share capital and debt
Capital
Capital is the money that a company uses to operate and develop. There are two main ways in which a company can raise capital, that is find the money it needs: it can use share capital or loan capital, from investors. These are people or organizations who invest in the company; they put money in hoping to make more money.
Words
capital /ˈkæpətl/★★★ S3 W1 n.
[singular, uncountable] money or property, especially when it is used to start a business or to produce omore wealth
The government is eager to attract foreign capital.
share capital n.
capital that a company has from investors who have bought shares
San Paolo said it plans to sell the shares, which represent 20% of the bank’s share capital.
loan capital n.
capital in the from of money lent to a company as loans, bonds or debentures, not shares
SYNdebtThe Welsh Development Agency provides loan capital for industrial projects.
invenst in something phv.
to buy something or spend money or time on something, because it will be useful for you
It’s about time you invested in a new shirt.
Share capital
Share capital is contributed by shareholders who put up money and hold shares in the company. Each share represents ownership of a small proportion of the company. Shareholders receive periodic payments called dividends, usually based on the company’s profit during the relevant period. Capital in the form of shares is also called equity.
A venture capitalist is someone who puts up money for a lot of new companies.
Words
shareholder /ˈʃeəˌhəʊldə $ ˈʃerˌhoʊldər/ ★☆☆ n.
[countable] someone who owns shares in a company or business
SYNstockholderShareholders have been told to expect an even lower result next year.
put up phvt.
to provide an amount of money for a particular purpose, especially to start a business
He has agreed to put up $750 million for a 15% stake in the consortium.
periodic /ˌpɪəriˈɒdɪk◂ $ -ˌpɪriˈɑː-/ ★☆☆ adj.
[only before noun] happening a number of times, usually at regular times
periodic home visits by nurses
dividend /ˈdɪvədənd, -dend/ n.
[countable] apart of company’s profit that is divided among the people with shares in the company
Final dividend on shares is held at 2.25p, reflecting the upturn in business in recent months.
equity /ˈekwəti/ n.
[uncountable] the capital that a comany has from shares rather than from loans
The CEO has been moving toward the use of equity rather than debt.
venture capitalist n.
someone who invests money in new business
In the fourth quarter, venture capitalists invested $317 million in computer-related business start-ups.
Loan Capital
Investors can also lend money, but then they do not own a small part of the company. This is loan capital, and an investor or fianacial institution lending money in this way is a lender. The company borrowing it is the borrower and may refer to the money as borrowing or debt. The total amount of debt that a company has is its indebtedness.
The sum of money borrowed is the principal. The company has to pay interest, a percentage of the principal, to the borrowers, whether it has made a profit in the relevant period or not.
Words
lender /ˈlendə $ -ər/ ★☆☆ n.
[countable] a person or organization that lends money to people on condition that they pay it back
Several lenders are offering very attractive rates of interest at the moment.
borrower /ˈbɒrəʊə $ ˈbɑːroʊər, ˈbɔː-/ n.
[countable] someone who has borrowed money and has not yet paid it all back
Most borrowers pay 7% interest.
borrowing /ˈbɒrəʊɪŋ $ ˈbɑːroʊ-, ˈbɔː-/ n.
[countable, uncountable] when a person, government, company tc borrows moeny, or the money that they borrow
Public borrowing has increased.
debt /det/ ★★★ S3 W2 n.
[countable] a sum of money that a person or organization owes
She had debts of over £100,000.
indebtedness /ɪnˈdetədnəs/ n.
[uncountable] the amount of money you owe to someone
My current indebtedness to Citibank is $435.97.
principal /ˈprɪnsəpəl/ ★★☆ W2 n.
[singular] the original amount of money that is lent to someone, not including any of the interest.
The government will also receive inflation-adjusted 12 percent interest on the unpaid principal.
interest n.
[uncountable] the extra money that you must pay back when you borrow money.
The interest on the loan is 16% per year.
Security
Lending to companies is often in the form of bonds or debentures, loans with special conditions. One condition is that the borrower must have collateral or security: that is, if the borrower cannot repay the loan, the lender can take equipment or property, and sell it in order to get their money back. This may be an asset which was bought with the loan.
Words
bond /bɒnd $ bɑːnd/ ★★☆ n.
[countable] an offcial document promising that a government or company will pay back money that it has borrowed, often with interest.
My father put all his money in to stock makret bonds.
debenture /dɪˈbentʃə $ -ər/ n.
[countable] an official document produced by a company showing how much interest it will pay on a loan
All methods of borrowing open to individuals may be used by a company with the additional method of issuing a debenture.
collateral /kəˈlætərəl/ n.
[uncountable] property or othe rgoods that you promise to give someone if you cannot pay back the money they lend you
SYNsecurityWe put up our home as collateral in order to raise the money to invest in the scheme.
Leverage
Many companies have both loan and share capital. The amount of loan capital that a company has in relation to its share capital is its leverage. Leverage is also called gearing in BrE. A company with a lot of borrowing in realtion to its share capital is highly leveraged or highly geared. A company that has difficulty in making payment on its debt is overleveraged.
Words
leverage /ˈliːvərɪdʒ $ ˈle-, ˈliː-/ n.
[uncountable] influence that you can use to make people do what you want
diplomatic leverage by the US
gearing /ˈɡɪərɪŋ $ ˈɡɪr-/ n.
[uncountable] the relationship between the amount of money that a company is worth and the amount that it owes in debts
Mr Record said Britannia had net debts of £40m and gearing of 110 percent
highly leveraged or highly geared adj.
having a lot of debt in relation to share capital. This is important when considering the cost of repaying debt in realtion to paying dividends to shareholders, and in questions of ownership of the company
Many firms are highly geared, having borrowed to expand their businesses. Now, with incomes falling, interest payments are almost impossible to meet. There still are many highly leveraged companies that are close to defaulting.
overleveraged /ˌəʊvəˈliːvərɪdʒ◂ˌoʊvərˈle-, -ˈliː-/ adj.
if a company or country is overleveraged, it has borrowed too much money and cannot make payments on the debt
SYNoverborrowed, overgearedThe banks are taking over more real estate from overleveraged developers and putting it on the market.
Additional Words
dilute /daɪˈluːt $ dɪˈluːt, daɪ-/ ★☆☆ vt.
to make a liquid weaker by adding water or another liquid
diluted fruit juice
Dilute the paint with a little oil.
to make a quality, belief etc weaker or less effective.
SYNwater downan attempt to dilute the proposals
dilution /daɪˈluːʃən/ n.
Any dilution of standards must be resisted.
It is the end of this time : )
