can finance majors get a cpacan finance majors get a cpa – The prestigious finance professor Aswath Damodaran published on January 20 on his Twitter account ?Comparing investment returns to costs of capital, more than half of all companies destroyed value in 2015?.
A key aspect that affects the generation of value of companies is their financing structure. In a scenario of fluctuations in interest rates and exchange rates, where the markets characterized by great uncertainty, define a financial structure according to the needs of the company (mix of own and third-party funds, conditions, term and currency ) can play a very important role in its future.
For this reason, it is very vital that the company has clearly identified its short- and long-term financing strategy, trying to achieve an optimal structure based on its needs.
These appreciations apply both to new projects that are in the formulation and evaluation stage, as well as to companies in progress that seek to restructure their level of indebtedness.
Within the framework of this objective, there different alternatives in the square, which presented below.
Banking System Alternatives
One of the most used financing alternatives in our country is to resort to the banking system for the purpose of managing working capital as well as investments in fixed assets:
Local institutions : This alternative allows access to both public and private institutions.
Banking institutions offer different financing options, the limits of which depend on their Net Equity Responsibility and the credit rating of the requesting company -generally being 15% of the RPN- as a reference, the main banks are between USD 15 million and USD 63 million – and can reach 35% in exceptional cases). Among the products they offer, the following stand out:
can finance majors get a cpa
– Line of credit: allows the company to operate within the agreed limit without the need for ?continuous? from the bank.
– Fixed-term loans: consists of loans in national or foreign currency at a predefined rate and term.
– Pledge and mortgage loans: through this service, companies can finance investments in fixed assets such as equipment and real estate.
– Pre-financing of exports: it a service for exporting companies, through which they granted a loan to buy or produce the goods to exported and financing until the collection of the exported goods.
– Factoring: this tool allows companies to assign part of their credits to financial institutions in exchange for an advance on them. Non-bank financial companies are also in the market for the development of these services.
– Document discount: provides the company with liquidity, before the expiration of the document. The bank advances the beneficiary the amount less a discount, in exchange for the transfer of rights to the document.
– Pool of Banks: due to the fact that the BCU caps (based on equity) the amount that banks can lend to companies and the risk of debt concentration in certain sectors, another method of financing arises: the ?pool of banks ?. In this way, companies can access the desired financing or greater financing.
can finance majors get a cpa
Especially, for the financing of investment projects, the BROU, calls every year a tender for projects that ends in the month of May and offers subsidized conditions (finances up to 70% of investment, term of up to 10 years, grace of up to 2 years for capital and bonus rates depending on the “ranking” of the tender).
Foreign Institutions : It is possible to obtain financing through Development Banks and Multilateral Organizations, such as the IDB (Inter-American Development Bank), the CAF (Development Bank of Latin America), the FMO (Dutch Financial Corporation) and DEG (German Society Investment and Development).
They finance projects that contribute to the development of the country, in all sectors of the economy, being able to grant better conditions than other sources (amount, term and interest rate).
The services they provide include: project financing, loans in dollars or local currency, subordinated debt, lines of credit or partial guarantees, among others.
For their part, the amounts they offer are variable depending on who the recipient is (SMEs, large companies, banks, government companies, investment funds, NGOs, etc.), and can be from USD 100 thousand to more than USD 250 million.
Other financing alternatives
In addition to the choices offered by the banking system, companies can financed with other sources:
Strategic or financial partners : The entry of a new partner can the boost that the company needs, and their choice will depend on the objectives that being sought. A strategic partner generates operational synergies by creating competitive advantages, in exchange for an impact on the control and decisions of the company.
The financial partner, for its part, provides financing in exchange for profitability. Although it usually has a minority stake, in some instances, through shareholder agreements, it granted a majority stake for decision-making on key points of the business. The financial partner’s investment time horizon is significantly shorter than that of the strategic partner.
Disposal of non-operating assets : On the one hand, divestment can considered a short-term tool, to quickly get cash, while on the other hand, it can have a more strategic function for the firm; optimize the use of non-operating assets that currently yield less than the cost of capital to take advantage of other business opportunities that generate greater value.
Lease-Back : It is a financial instrument that allows the transformation of fixed assets into liquid ones through two simultaneous operations: a purchase and sale contract and a financial lease contract.
With this instrument, the owner of a property (for example, a property) sells it to an investor, with the commitment to be the tenant of the same for a specific period and at the end of the period has the option to repurchase. This is a very interesting alternative, since it allows obtaining liquidity, maintaining the use of the asset in exchange for a periodic payment.
What changes are taking place in the market?
Uruguay has presented in recent years a great development of the capital market, counting on the AFAPs as the main institutional actor.
Although it seems, at first glance, a more complex market and with higher initial costs as a result of the structuring, it can present several advantages over other sources of financing, offering in some cases greater flexibility both in term and in the grace period, rate and currency.
Various instruments currently handled, such as debt issuance (through financial trusts or negotiable obligations), certificates of participation or mixed instruments and shares.
Financial trusts a financing alternative that allow the securitization of assets that will be backed by the assets of the trust itself. Through this instrument, the company constitutes an independent patrimony that will be managed by a trustee registered with the BCU.
For their part, Negotiable Obligations debt securities issued by private sector companies. They have a pre-established maturity and a fixed or adjustable interest rate, but previously agreed.
The Uruguayan capital market has managed in 2015 to consolidate the takeoff that had observed in 2014 with regard to the issuance of private debt securities. In the last year, in BEVSA and BVM the number of operations of these instruments was 26, representing approximately USD 900 million. This amount exceeds the issues of 2014, maintaining the number of operations (BEVSA 15 issues for USD 460 million and BVM 11 issues for around USD 370 million).