1) Explain differences between internal and external source of funds with examples.
Internal Sources of Business Finance
· Retained Profit – Profit is the internal funding source of the corporation for business sustaining and expansion by venturing into new markets or R&D. Without profit, it means a corporation is lack of funding even on operating costs. Business continuity can maintain when there is profit.
· The Sales of Assets – Corporations may sell less profitable business line to raise expansion capital or cash for business line that is more profitable or have future growth. Recently Wolfspeed, Inc. (NYSE: WOLF) announced that its radio frequency business (Wolfspeed RF) selling to MACOM Technology Solutions Holdings, Inc. (Nasdaq: MTSI) for approximately $75 million in cash.
· Utilizing working capital more effectively – Corporation planning team is practicing Just In Time Production to ensure no excess or no order inventories stored in warehouse. Only orders confirmed from customers will be put into production. Planning team work closely with customer sales service team to ensure sufficient materials to support customer production line. With this, working capital will be used more effectively without tied up in redundant areas in the supply chain.
· Depreciation – Commonly in corporation annual report, depreciation is on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment from the date that they are available
for use.
External Sources of Finance
Long term:
Share Capital – Getting funding from investors or customers that have confidence on company future performance. For example: Renesas Electronics Corporation (TSE:6723, “Renesas”) and Wolfspeed, Inc. (NYSE: WOLF, “Wolfspeed”) announced the execution of a wafer supply agreement and $2 billion (USD) deposit by Renesas to secure a 10 year supply commitment of silicon carbide bare and epitaxial wafers from Wolfspeed. BorgWarner to Invest $500 Million in Wolfspeed, Securing up to $650 Million in Annual Capacity for Silicon Carbide Devices
• Loan Capital – Getting funding from bank or lenders.
• Venture Capitalists – Getting funding from specialist bankers who are more risk taking of new business than traditional bank. For ex: a group of lenders led by Apollo Global Management Inc (NYSE: APO) provides up to $2 billion to Wolfspeed Inc (NYSE: WOLF) to support the latter's expansion in the U.S.
• Grants from Governments & other philanthropic organizations.- Getting funding from USA government under Chip Act funding for semiconductor companies. For example: Feds clear Wolfspeed for chance at vital CHIPS Act funds to support $5B Chatham factory.
Short term:
• Bank Overdraft - An overdraft is repayable on demand and should be used for short term funding needs
• Trade Credit - Trade Credit is when a business gains extended time to pay its suppliers perhaps 30 or 60 days after the delivery of the suppliers goods. For example: some companies even push for 90 days payment term.
• Factoring - When working capital is tight or when a business is struggling to get paid by customers, it may consider using a third part agency to help.
• Leasing - When purchasing assets such as new machines or vehicles it can be sometimes be useful to consider leasing as a source of finance.
Describe the shares listing requirements and procedures for a company in Bursa Malaysia.
Bursa Malaysia offers a choice of three markets to companies seeking for listing in Malaysia:
Primary Listing of Local or Foreign Companies Quantitative Criteria
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Aspect |
Main Market |
ACE Market |
LEAP Market |
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Quantitative Admission Criteria |
1. Profit Test
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No minimum operating track record or profit requirement. |
No minimum operating track record or profit requirement. |
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2. Market Capitalisation Test
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3. Infrastructure Project Corporation Test
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Public Spread |
At least 25% of the company’s total number of shares; and |
At least 25% of the company’s total number of shares; and |
At least 10% of the company’s total number of ordinary shares at admission. |
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Minimum of 1,000 public shareholders holding not less than 100 shares each. |
Minimum of 200 public shareholders holding not less than 100 shares each. |
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Bumiputera Equity Requirement* |
Allocation of 50% of the public spread requirement to Bumiputera investors at the point of listing. |
No requirement at the point of listing.
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No requirement at the point of listing. |
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Allocation of 12.5% of the enlarged share capital to Ministry of International Trade and Industry (MITI)-recognised Bumiputera investors.
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within 1 year after achieving Main Market profit track record, or |
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5 years after being listed on ACE Market, |
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whichever is the earlier. |
Primary Listing of Local or Foreign Companies Qualitative Criteria
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Aspect |
Main Market |
ACE Market |
LEAP Market |
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Sponsorship |
Not applicable. |
Engage a Sponsor to assess the suitability for listing. |
Engage an Approved Adviser to assess the suitability for listing. |
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Sponsorship is required for at least 3 full FY post listing and the Sponsor who submitted the listing application must act as the Sponsor for at least 1 full FY following upon admission. |
Secure and maintain a Continuing Adviser for at least 3 years post listing and the Approved Adviser who submitted the listing application must act as the Continuing Adviser for at least 1 FY upon admission. |
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ACE Market corporations that have met the Main Market admission criteria: sponsorship is for one full FY. |
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Core Business |
An identifiable core business which it has majority ownership and management control. |
Core business must not be holding of investment in other listed companies. |
A clearly identifiable core business. |
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Core business must not be holding of investment in other listed companies. |
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Management Continuity and Capability |
Continuity of substantially the same management for at least 3 full FY prior to submission; or |
Continuity of substantially the same management for 3 full FY prior to submission or since its incorporation (if less than 3 full FY). |
Not applicable. |
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For market capitalisation test or infrastructure project corporation test, since the commencement of operations (if less than 3 full FY). |
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Financial Position & Liquidity |
Sufficient level of working capital for at least 12 months from the date of prospectus; |
Sufficient level of working capital for at least 12 months from the date of prospectus. |
Not applicable. |
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Positive cash flow from operating activities for listing via profit test and market capitalisation test; and |
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No accumulated losses based on its latest audited financial statements for listing via profit test. |
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Moratorium on Shares |
Promoters’ entire shareholdings for 6 months from the date of admission. |
Promoters’ entire shareholdings for 6 months from the date of admission. |
Promoters’ entire shareholdings for 12 months from the date of admission. |
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Subsequent sell down with conditions for companies listed under infrastructure project corporation test. |
Subsequently, at least 45% must be retained for another 6 months and thereafter, further sell down is allowed on a staggered basis over a period of 3 years. |
Subsequently, at least 45% must be retained for another 36 months. |
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Promoters of ACE Market corporations that have met the Main Market admission criteria: 6 months from the date of admission. |
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Transaction with Related Parties |
Must be based on terms and conditions which are not unfavourable to the company. |
Must be based on terms and conditions which are not unfavourable to the company. |
Must be based on terms and condition which are not unfavourable to the company. |
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All trade debts exceeding the normal credit period and all non-trade debts, owing by the interested persons to the company or its subsidiary companies must be fully settled prior to listing. |
All trade debts exceeding the normal credit period and all non-trade debts, owing by the interested persons to the company or its subsidiary companies must be fully settled prior to listing. |
All trade debts exceeding the normal credit period and all non-trade debts, owing by the interested persons to the company or its subsidiary companies must be fully settled prior to listing. |
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Additional Requirements for: Mineral, Oil and Gas Exploration and Extraction Corporations or Assets. |
Sufficient level of working capital for at least 18 months from the date of prospectus. |
Not applicable. |
Not applicable. |
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Type of Investors |
Public. |
Public. |
Sophisticated Investors only (as prescribed under the Capital Markets and Services Act 2007). |