After reading this chapter, you should understand the following:
- The general sources of corporate funds
- The basics of corporate bonds and other debt leveraging
- What the various types of stocks are
- Initial public offerings and consideration for stock
- What dividends are
- Some of the modern trends in corporate finance
A corporation requires money for many reasons. In this chapter, we look at the methods available to a corporation for raising funds, focusing on how firms generate large amounts of funds and finance large projects, such as building a new factory.
One major method of finance is the sale of stock. A corporation sells shares of stock, often in an initial public offering. In exchange for consideration—usually cash—the purchaser acquires stock in the corporation. This stock may give the owner a share in earnings, the right to transfer the stock, and, depending on the size of the corporation and the number of shares, power to exercise control. Other methods of corporate finance include bank financing and bonds. We also discuss some more modern financing methods, such as private equity and venture capital. Additional methods of corporate finance, such as commercial paper (see Chapter 19 "Nature and Form of Commercial Paper" and Chapter 20 "Negotiation of Commercial Paper"), are discussed elsewhere in this book.