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INTRODUCTION: EQUITY FINANCING
COURSE OVERVIEW
The purpose of this workbook is to provide the student with a broad introduction to
the topics relating to equity and its use as a source of capital for companies. Equity
financing can be analyzed from the perspective of the issuer as well as from the
investor. Both perspectives are considered in this workbook; in many instances they
are very much alike. Completion of this workbook provides the student with a
working vocabulary of terms used in the equity markets and an understanding of
some commonly used methods for both issuing and valuing equity securities.
UNIT 1: Fundamentals of Equity
Common fundamentals necessary to understand equity market transactions are
introduced in Unit One. This includes the markets in which equity securities are
traded, a discussion of the participants in the markets, and definitions of the
different types of equity securities and their characteristics. This unit does not
require any mathematical analysis; the major focus is on introducing and
defining key terms.
UNIT 2: Issuing Equity Securities
The process of issuing equity securities is detailed in Unit Two. The various
steps for bringing an issue to investors in the market are described and
discussed. Public offerings are compared and contrasted to private offerings.
These two major types of offerings are broken down into the common methods
used by issuers. The role of the investment banker is discussed with each
method. Also included is a simple example that illustrates the process for
placing a price on the shares being offered. The focus of this unit is on key
terms and processes, with very little mathematical analysis. The student will
learn to distinguish between the different types of offerings and the strengths
and weaknesses of each.
UNIT 3: Valuing Equity Securities
We look at different methods for estimating the value of equity securities in
the third, and final, unit. The main methods described include ratio valuation,
relative valuation, and discounted cash flow valuation. Each method group is
demonstrated and discussed, including its relative strengths and weaknesses.
There are many calculations to learn in this section. Most of the computations
are applications of the general formulas discussed in the Basics of Corporate
Finance workbook. It may be helpful to review the calculations presented in that
workbook if you are having trouble understanding the calculations presented in
Unit Three. A financial calculator is very helpful in solving the types of problems
discussed in this section.
This workbook provides the student with a good working vocabulary and
understanding of the equity markets and the securities that are traded there. This
introduction will prepare the student for further study and application of equity as a
financing alternative for companies attempting to raise capital for their operations.
COURSE OBJECTIVES
When you complete this workbook, you will be able to:
Recognize the types of equity instruments, the characteristics of the
equity markets, and the market participants
Understand the issuing processes for publicly- and privately-placed
equity securities
Identify the costs, both direct and indirect, associated with various types
of equity issues
Demonstrate various techniques for estimating the value of equity
securities
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