Risk factors the company may consider for raising capital
There are several risk factors that may be considered in choosing an over-seas market for listing or raising capital however, there relevancy is always chosen by their nature and location on the market. Some factors may include;
The government policy concerning foreign investors must be considered before the company takes an initiative to invest in any particular country or state. When there are favorable terms in form of optimal tax policies and contusive market for business, it is wise for the company to invest in such a country. This is because the firm will be guaranteed to get a better market for its products and merging with partners that may boost the image of the company (Choi and Meek, 2010). The firm must consider the cost of capital which is determined by the interest rates in the state.
The firm must also consider the continuity in cases of partnering with other firms. Some of the evidence of continuity of a company is a financial statement of at least the past one year showing profit. From these statements, the firm can make simple analysis and determine information about the continuity of the company. For example the quick ratio, the margin ratio, the acid test and the current ratio are some of the analysis used for evaluation (Choi and Meek, 2010).
The factor that might have contributed in E-centives’ decision to raise capital include a need to expand its market base. This is a business move that is aimed at increasing the revenue of the company, and requires more capital for objectives of the company to be easily achieved. Through this strategy by the firm it is able to achieve growth in the market share. This step also encourages the employees to be more productive as they are assured of employment in future. The listing in the Swiss Exchange exposes the company to better prospects in future and enables the firm to face its competitors on a level ground with new energy (Saudagaran, 2009).
Factors determining the ability of the firm to enter an exchange market
Some of the reason for E-centives avoiding to raise public equity may include; it’s loses in the previous year had damaged its reputation. This may complicate the process of raising capital through the IPO because; most investors will shy away due to its poor performance. It is also possible that the government policy do not support the company’s progress, this leaves the company with no other choice but to venture outside the US.
There may be the problem of unhealthy competition from other competitors in the industry. This may be a great challenge for growth as all the moves of the company are watched by the competitors. Some times when a firm is planning to invest it must ensure that the location is the most appropriate for growth in future and currently. This ensures that the company growth prospects are put at a high level and are more stable as it acts as a form of diversification.
Disadvantages of the company being unable to raise capital in US include the fact that, it may lose ground in the US inform of the competitors taking full advantage of the indecision of its customers due to the move and win them over. Furthermore, the organization may lose a chance to enjoy the incentives that may come with the company lounging its IPO in the US. The business may also trigger a public scrutiny of the company details as the general public will be concerned about the incident (Saudagaran, 2009).
Raising public equity in the US
Advantages of using U.S. GAAP are,
- The firm is able to abide by the law as some of them are a requirement by statute.
- It formulates the company accounting department in to a system that can easily be audited by any one due to standardization.
- It becomes easy for the company to formulate its budget as this system is able to provide a detailed record of the firm’s financial statement.
- The company records are available to the public for scrutiny.
- A competitor can easily read and understand the status of the company and plan a strategy attack.
- It is not flexible as it prohibits international firms from using the most widely used standards like the IFRS (Saudagaran, 2009).
Advantages and disadvantages of using U.S GAAP
Yes the Swiss may require E-centive to prepare its financial statements using Swiss accounting standards if the law says so.
New Market at the SWX Swiss Exchange
The security to be listed as a new entrant must have complied with all existing laws that govern its existence and operation.
It must comprise all of the issued shares in the same class.
The shares must have a sufficient free float when being listed.
There must be an established proper trading on existing shares and a law governing their ownership.
The financial reporting requires for an audit report of the ending financial year be provided and the financial statements.
E-centive has the ability to fit in the profile but it may be limited by its performance.
Choi, F., & Meek, G. (2010). International Accounting, 7th edition. Upper Saddle River: Pearson Education.
Saudagaran, S. M. (2009). International Accounting: A User Perspective. New York: Penguin publishers.