Raising finance for the company……..

Raising finance for multinational enterprises, collaborative ventures & foreign subsidiaries

When the point comes to raise finance for an organization, mainly 2 options are available: debt and equity. These capital sources have their own benefits and losses. It is essential to strike a strong balance between equity financing and debt financing, it clearly states that measuring the advantages and cost of debt and equity, it is needed to ensure that the company that one cannot stick the firm with debt one cannot repay and minimise the cost of capital (Nasery, 2012).

Debt financing form has been taken as a common in loans which is issued for some time period that will acquire interest in most of the cases. Equity financing can be attained by acquiring duties from all the investors in share form. Both equity and debt are known as valid financing sources and it is more crucial that business areas have to involve both financing methods along with the option to use in combination of each other. It can produce sense of borrowing money for the purpose to cover entire cost to purchase newer equipments but the financing ford development can only come from the venture capital. With the combination of debt and equity, one can maximize the funds while designing the repayments of debt as well as the responsibilities to the shareholders for meeting with the requirements.

For an example, UK banks like the bank of England are needed to maximize its capital. Restrictive bonuses and the dividends do not take place to generate the required amount of capital and now the need of external financing has taken place. International financing can be proved as major option for the banks in UK and they will be more capable in sourcing enough amount of the fiancé from the organizations in UK (Martin, 2012). Furthermore, getting hold of the debt financing option, it may lead to the bank crash. So the debt and equity ratio may be needed to be weighed up in one of the case just before any type of financing starts.

With so many choices for companies for raising their capital, any form of either debit or equity finance would be an acceptable choice. However, when companies doing  well like Facebook it allows the company to be more recognised worldwide. Facebook is a company currently in the headline for its IPO. On first of February 2012 Facebook announced its IPO, and is expected to offer up to $5bn. .As a result Mark z (Facebook CEO) is eager to give the smallest volume of equity away to the public.

Another recent example of the company raising finance is YELP the user generated review website, plans to raise as much as $100 million in what may be the first initial public offering from a major internet company this year.

Yelp, the local-ad driven social review site launched a record-breaking IPO today (Bloomsberg, 2012). Analysts believe the IPO could raise as much as $100m, a valuation even greater than Facebook which filed at record levels less than a month ago (IBT, 2012). However Yelp and Facebook are in direct competition in many areas of their revenue generation which typically focuses on the local ad market (Forbes, 2012). Have Yelp learned from the issues of Facebook in bringing their offering to the public? Some analysts are still concerned that Yelp is over-valued. In light of Facebook's success, probably not.

The IPO for YELP as cited in (Bloomberg) will probably come ahead of Facebook Inc., the biggest social networking website, which field to raise $5billion on Feb.1, without setting terms. At the midpoint of the price range Yelps offering would value the company at about $778million, or about 9.3 times last year’s sale. That compares with 5.2 times for Google Inc. and about 3.8 times for yahoo which Yelp lists as competitors in its prospectus.

Although the IPO for yelp is higher than Facebook  but I think Facebook will raise an unprecedented amount of money which will allow them to invest in projects that help the company grow  and because Facebook is  a highly desirable and popular business. The other reasing for that is that the IPO for Facebook isn’t to raise finance for a company who was in trouble like Yelp which yelp’s net loss last year widened to $16.7 million from $9.6 in 2010.

Surely the driving force behind this strategy is the resurgent tech IPO market. More specifically, Facebook, which is aiming to go public this spring in what is expected to be the biggest Internet IPO in history. Facebook has been the most actively traded stock on Second Market since the company launched its private stock market.

However, Yelp is not in financial green pastures. On net revenues of $83.3 million last year, Yelp lost $16.9 million. Its revenues were up 75% year over year, but its losses rose by a similar 74%. According to the New York Times, at the middle of its expected initial stock price, Yelp would be valued at $778 million.

While the company has grown quickly, it has long faced doubts about its ability to survive as a standalone firm, not least because of its prickly relationship with Google. Yelp has repeatedly accused Google of "scraping" its business listings and reviews of restaurants, bars, and retailers without agreement or compensation for use in its own Google Local service. 

Yelp has never had a yearly profit, losing money every year since it was born.

While the IPO market for technology companies has been open, if not exceptionally forgiving, the market reception of this IPO, which is less fundamentally sound from a technical perspective than other profitable tech firms, will be bell weather. If Yelp finds open arms from investors, it could lead to increased activity. A frigid reception could delay others from making the same move.

In conclusion, we can see number of reason behind the company’s strategy when they raise their finance and the companies doing that not always to fund the future project.

Refrence list:
http://mariamnasery.blogspot.co.uk/2012/04/raising-finance-for-multinational.html

http://www.bbc.co.uk/news/technology-16835116 [accessed  16.02.2012]

http://www.bloomberg.com/news/2012-02-16/yelp-seeks-to-raise-as-much-as-100-million-in-ipo-of-user-review-website.html [accessed 18.02.2012]

https://elp.northumbria.ac.uk/webapps/portal/frameset.jsp?tab_id=_2_1&url=%2fwebapps%2fblackboard%2fexecute%2flauncher%3ftype%3dCourse%26id%3d_224844_1%26url%3d [accessed 18.02.2012]

(Arnold,2008)

http://www.bloomberg.com/news/2012-02-01/facebook-files-to-raise-up-to-5-billion-in-ipo-of-social-networking-site.html[accessed 16.02.2012]

http://www.bloomberg.com/news/2012-02-01/facebook-files-to-raise-up-to-5-billion-in-ipo-of-social-networking-site.html[accessed 16.02.2012]

http://news.cnet.com/8301-1023_3-57368449-93/three-reasons-facebook-has-to-go-public/[accessed 16.02.2012]