Guide to Analysing Companies
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FINANCE Essencial finance
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- Interim dividend
- Internal funds
I
INTEREST-ONLY LOAN 175 02 Essential Finance 10/11/06 2:22 PM Page 175 Another reason for taking out an interest-only loan is when a borrower cannot afford to repay both interest and principal but anticipates having enough money when the loan matures to pay it off in full. Interim dividend Part of a company’s dividend paid at intervals during the year. Interim dividends are usually paid six months into the fi- nancial year. Some US companies pay quarterly but rarely more frequently unless, for some reason, a special dividend is de- clared and approved by the board of directors. Internal funds Companies have two sources that they can turn to when they need money: external funds from banks, capital markets and shareholders; internal funds from their own cash flow – cash retained within the business and not distributed to shareholders. Businesses that generate large amounts of cash (as distinct from profit) are able to rely more on internal funds than those, such as private equity companies, that have lumpy cash flows. Companies in Anglo-Saxon countries have tradi- tionally raised more money from their shareholders and the capital markets. Companies in continental Europe and Japan have closer links with their banks, which often have share- holdings in them. As a result, such companies have relied more on borrowings from banks for a large proportion of their exter- nal funds. I 176 INTERIM DIVIDEND 02 Essential Finance 10/11/06 2:22 PM Page 176 Internal rate of return The rate of interest which would discount the flow of revenue generated by an investment, so that the net present value of the flow is equal to the capital sum invested. At its simplest, the internal rate of return (irr) of a bank account is the rate of interest received on it. The irr is much used in appraising whether investment pro- posals are viable. In this case, analysts examine a venture’s income stream to arrive at the irr. This does not always give the same result as using net present value as a yardstick. One project can have a higher net present value than another, yet have a lower irr. Download 1.1 Mb. Do'stlaringiz bilan baham: |
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