9 types of financial markets for capital raising

wall street

I am currently making my way through the Five Minute MBA in Corporate Finance, which is likely to take about a month at the rate i am going (its 657 pages).

Anyway, Having found a particularly good summary of the different types of financial markets, i thought i would copy it across for those that are interested. I give full credit to the author but i have only been able to find a link to the book here. I also give credit to some definitions i found here.

Types of Markets

People and organizations who want to borrow money are brought together with those with surplus funds what are known as financial markets.

  • Each market deals with a somewhat different type of instrument in terms of the instrument’s maturity and the assets backing it.
  • Different markets serve different types of customers, or operate in different parts of the world.

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What is a company, what characterises a company and why form a company ?

limited liability

Companies are….

Most people have a decent concept of what a company is. They could tell you that there are lots of them, they make lots of money, most work for one, and typically that they sell a particular thing or provide a range of services. Most people even know that many companies have “pty ltd” next to their name and some of those people realise that it stands for proprietary limited.

If however, you were to ask someone to define what a company is or what “proprietary limited” actually meant, you may find a few more blank faces. Ultimately, it probably doesn’t matter to the majority of the population, but it is quite critical to understand what defines a company and what distinguishes it from other business forms before considering more complex legal and corporate issues.

The central themes that will continue to arise when thinking about companies are liability, ownership, financing, legal obligations and succession especially in the event that the company can no longer pay its debts when they fall due (insolvency).

Continue reading What is a company, what characterises a company and why form a company ?

Fundraising and Investment through IPOs and private equity (part one)


As i navigated a corporate and securities regulation course at Sydney University Law school, it became more and more clear to me that despite the fact that i knew the ASX (stock market) listing rules, insider trading principles and a bunch of continuous disclosure regimes found in the corporations act (to be discussed later), I was not anywhere near clear on a number of important questions that kept arising concerning the reality of a company actually raising investment:

  • What is the difference between raising investment / capital (used interchangeably) through an IPO (Initial Public Offering) on the stock exchange versus through private equity and do the two ever mix?
  • What are the variations of Private equity investment on offer and how do they relate to ‘going public’ through an IPO ?
  • What are the different ways private equity firms make their money ?
  • When would a company wish to raise capital publicly in an IPO versus privately from a private equity investment group ?
  • What factors affect this decision and what are the differing constraints placed on the company in an IPO as opposed to those imposed by a private equity investment group ?

I plan to answer each of these questions over a series of blogs about fundraising, investment and the factors affecting both investors and companies in these scenarios. I cannot outline how complex this area of knowledge can become due to one’s tendency to want to learn everything at once; leaving most frustrated and confused. Hopefully, i will be able to keep everyone’s attention by breaking down what can become complex into simple and useful pieces of information. Please remember i am not writing this for experts. Continue reading Fundraising and Investment through IPOs and private equity (part one)

9 key definitions to understand the valuation and earnings of companies

learning goggles - key valuation definitions

Valuation of Companies and 9 key definitions

After skimming through The Fast Forward MBA in Finance, Second Edition by John Tracy, a few key concepts (such as EPS, ROE, market capitalisation and P/E) kept coming up again and again when dealing with the value of companies. When read in combination with Joel Greenblatt’s book, The Little Book That Beats the Market which simplifies things to some degree, an understanding of these concepts is required to begin understanding whether a company is undervalued or overvalued on the stock exchange and hence whether you should invest in the company.

It is important to firstly recognise that the value of a company’s shares on the stock exchange is only a representation of what the public will pay at any particular time for a stake in the company and is not a direct representation of the company’s true value per se. This fact is actually why smart investors should always be able to make money investing the stock market. For example, if an investor is able to identify a under or overvalued company, they can make the appropriate decision to either buy the stock if it is undervalued or sell the stock (we’ll come to how you can sell stock you don’t have later) if it is overvalued. Over time, whether it is overnight or over 5 years, the market will correct itself and the investor will profit from his analysis of the companies true value compared with the market’s perception of its value.

In later posts, I will describe how Greenblatt’s book proposes a magic formula strategy for identifying undervalued companies based on a company having a high earnings yield and a high return on capital. Firstly, however, this post will aim to explain these concepts so that we can get familiar with them first. Some of the definitions below are drawn from Tracy’s glossary in The Fast Forward MBA in Finance, Second Edition.

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Welcome to JamesCox.com.au

original james cox finance blog background

This website will share a range of financial information centering mainly around corporate finance, investing, share trading, the stock market, growing companies and business, Economics, Law, Random relevant news events, and generally making money (probably some poker thrown in).

I am writing this blog for three main reasons. Since finishing my law degree, I find myself reading many books on these subjects and so far i am finding them particularly interesting.

In addition to this, financial topics are traditionally very hard to ‘get into’ or learn about and there seems to be a certain and somewhat intentional cloud of secrecy around their understanding. The number of times I have searched “learn share market” or “what is an option?” into Google and arrived at a page telling me to go to seminar or pay for an ebook (that is likely to tell me to go to a seminar) has led me to believe someone should be providing this information for free.

Finally, understanding these things is interesting even on the face of it but can obviously allow you to have a much greater chance of success in a variety of important facets of life no matter what you do and who you are. You don’t have to be a capitalist or investment banker to enjoy finance and regardless of your political and moral inclinations, understanding these topics are likely to increase your ability to live in what is obviously a capitalist society.

I am not a finance expert, I have a sound business sense in development and a legal background, but i am by no means going to write like so many money magazines or guides where you need a cipher to understand the majority of an article. Ideally, this blog will be simple, straight to the point and introductory to a wide range of financial topics.

This blog will hopefully demystify some of the concepts that seem so foreign to most people and provide a less than 400 page insight into the financial world from the perspective of an financial novice as I begin to truly understand alot of the concepts myself.

I look forward to writing this blog and i hope someone out there will enjoy reading it.

If you enjoy the blog, please become a fan and get in touch of on James Cox finance blog facebook group.

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