Download miễn phí Chuyên đề Corporate Financing – Theories in Vietnam Realities



TABLE OF CONTENTS
 
Part I: Introduction 3
Part II: Background – General Concepts
Equity
Debt
Other sources 5
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9
Part III: Development – Theories in Vietnam realities
Economics
Legal and customary aspects 12
12
17
Part IV: Conclusions and recommendations 18
Part V: Appendix
Appendix 1: Number of acting enterprises as of annual 31 Dec.by type of enterprise
Appendix 2: Annual average capital of enterprises by type of enterprise
Appendix 3: Value of fixed asset and long term investment of enterprises as of annual 31 Dec. by type of enterprise
Appendix 4: Net turnover of enterprises by type of enterprise
Appendix 5: Number of enterprises as of 31 Dec. 2005 by size of employees and by type of enterprise
Appendix 6: Capital resources of enterprises
Appendix 7: Gross domestic product constant 1994 prices by ownership and by kind of economic activity
Appendix 8: State budget revenue final accounts 20
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Reference 29
 
 


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inancing, this essay focus on the theory and reality of the problems in Vietnam in five parts as follows:
Part I: Introduction
Part II: Background – General Concepts
Part III: Development – Theories in Vietnam realities
Part IV: Conclusions and recommendations
Part V: Appendix
II. BACKGROUND - GENERAL CONCEPTS
When financing the capital demand, a company can rely on internal capital (current equity plus retained earnings and depreciation) or external capital (borrowing or issuing more stock). For the internal capital, it is the most convenient way to for the financial manager to have enough capital for operating his company. Obviously, the financial manager shall consider the internal capital prior to any other capital sources. However, the internal capital is hardly enough for new investment as well as other new capital demanded because they have been divided into many current as fixed assets of the company. If the company has enough internal capital for its operation, the problem of financing may can be solved by itself.
Therefore, it is customary to classify external sources of finance as debt or equity. When the firm borrows, it promises to repay the debt with interest. If it doesn’t keep its promise, the debt-holders may force the firm into bankruptcy. However, no such commitments are made to the equity-holders. They are entitled to whatever is left over after the debt-holders have been paid off. For this reason, equity is called a residual claim on the firm.
Equity
If a company wishes to raise more money, it can sell more shares or stock. However, there is a limit to the number that it can issue without getting the approval of the current-share. Normally, this limit is approved in a General Shareholder meeting. Nevertheless, the proposal to issue more share is not always passed easily by the meeting. A company, pursuant to the approval of General Shareholder meeting, can issue common stock or preferred stock.
In general, a joint-stock corporation is owned by its common stockholders. Some of this common stock is held directly by individual investors, but the other proportion may belong to financial institutions such as banks, pension funds, and insurance companies.
Common stock, also referred to as common or ordinary shares, is, as the name implies, the most usual and commonly held form of stock in a corporation. Common stocks are units of ownership of a public corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. For the most part, however, common stock has more potential for appreciation.
Some other companies also have preferred stock or preferred shares. They are the shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders.
Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. The earnings of a corporation are applied to this payment before common stockholders receive dividends. If corporate earnings are insufficient for the fixed annual dividend, the preferred stock will absorb the total amount of earnings, and the common stockholders will be precluded from receiving a dividend. When corporate income exceeds the amount that is needed to pay preferred stockholders, the remainder is generally paid to common stockholders.
Preferred stock can be cumulative or noncumulative. If it is cumulative and if the fixed dividend remains unpaid, it becomes a debit upon the surplus earnings of succeeding years. Accumulated dividends must be paid in full before common stockholders can receive dividends. When preferred stock is noncumulative, its preference is extinguished by the failure of the corporation to have sufficient earnings to pay the fixed dividend in a given year.
Some preferred shares have special voting rights to approve certain extraordinary events (such as the issuance of new shares or the approval of the acquisition of the company) or to elect directors, but most preferred shares provide no voting rights associated with them. Some preferred shares only gain voting rights when the preferred dividends are in arrears for a substantial time. Besides, there are some other kinds of preferred stock such as convertible preferred stock, exchangeable preferred stock, participating preferred stock and perpetual preferred stock.
A company also can buy back the stocks issued by itself to reduce the number of outstanding stocks on the open market. These stocks are call treasury stocks, treasury shares or reacquired stocks. In case of necessary, the company can sell its treasury stocks at market value to finance its operation. However, the selling or buying of treasury stocks still depend on the limit set by company charter as well as other regulation set by the General shareholder meeting, Board of management and other relevant authorities.
Debt
In order to raise money for operation, a company can also borrow capital from different sources in different forms. When companies borrow money, they promise to make regular interest payments and to repay the principal. However, this liability is limited. Stockholders have the right to default on the debt if they are willing to hand over the corporation’s assets to the lenders. Clearly, they will choose to do this only if the value of the assets is less than the amount of the debt.
When companies borrow money, they promise to make regular interest payments and to repay the principal. However, this liability is limited. Stockholders have the right to default on the debt if they are willing to hand over the corporation’s assets to the lenders. Clearly, they will choose to do this only if the value of the assets is less than the amount of the debt.
In general the mixture of loans that each company issues reflects the financial manager’s response to a number of questions:
1. Should the company borrow short-term or long-term? It depends on the characteristics of the capital demand and current financial situation of the company. Normally, short-term loan is to finance current assets and long-term loan is for fixed assets. However, depend on the financial balance of the company, the financial manager can decide to finance long-term investment by sort-term loan or finance current assets by long-term loans. Obviously that this decision must be accepted by the bankers.
2. Should the debt be fixed or floating rate? The interest payment, or coupon, on long-term bonds is commonly fixed at the time of issue. However, most bank loans and some bonds offer a variable, or floating, rate. For example, the interest rate in each period may be set at 1 percent above LIBOR (London Interbank Offered Rate), which is the interest rate at which major international banks lend dollars to each other. When LIBOR changes, the interest rate on your loan also changes.
3. Should you borrow in domestic currency or some others? The financial manager shall decide the problem base on the interest rate, exchange rate, source of revenue and forecast of above-mentioned factor.
4. What promises should you make to the lender? Lenders want to make sure that their debt is as safe as possible. Therefore, they may demand that their debt is senior to other debt. If default occurs, senior debt is first in line to be repaid. The junior, or subordinated, debtholders are paid only after all senior debtholders are satisfied (though all debtholders rank ahead of the preferred and common stockholders). The firm may also set aside some of its assets specifically for the protection of particular creditors. Such debt is said to be secured and the assets that are set aside are know as collateral. Thus a retailer might offer inventory or accounts receivable as collateral for a bank loan. If the retailer defaults on the loan, the bank can seize the collateral and use it to Giúp pay off the debt.
5.Should you issue straight or convertible bonds? Companies often issue securities that give the owner an option to convert them into other securities. These options may have a substantial effect on value. The most dramatic example is provided by a warrant, which is nothing but an option. The owner of a warrant can purchase a set number of the company’s shares at a set price before a set date. Warrants and bonds are often sold together as a package. A convertible bond gives its owner the option to exchange the bond for a predetermined number of shares. The convertible bondholder hopes that the issuing company’s share price will zoom up so that the bond can be converted at a big profit. But if the shares zoom down, there is no obligation to convert; the bondholder remains a bondholder.
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