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新西兰代写paper |External Capital Organization

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External Capital Organization

“Access to external capital is a major factor in the survival of any organization, especially of organizations as heavily dependent on emerging technologies as health care providers (McLean, 2003, p.281). Explain in detail how health care organizations determine the need for, acquire, use, and pay back external capital requirements. Include, in your analysis, necessary financial ratios, as reported for Standard and Poor and/or Moody’s financial services, to maintain the S & P or Moody’s highest ratings.”


The need for external capital arises when an organization has a project that requires large amounts of money now and promises to produce a cash flow stream in the future. The organization either does not have enough internal capital in which to fund the project, or if the organization does have sufficient internal capital, it does not wish to use this for the project.

The promised future cash-flow stream will usually be much more than the net present value of the capital required now (for-profit organization), or will be enough to sustain the project and pay back the cost of the external capital (not-for-profit organization). Another reason why an organization may wish to use external capital is in order to refinance an existing source of external capital, e.g. a loan.

Ideally, apart from the promise of future cash flows, the project will also fit the organization’s strategic goals in its pursuit of its mission. In reality, often the politics and personalities within the organization impinge on the decision to pursue a project. For the purposes of this paper it is assumed that the project has already been approved.

In determining the need to take on external capital the organization should consider what type of healthcare organization they are, the environment they do business in, the industry characteristics, and the different methods of obtaining capital and their associated costs, e.g. short-term borrowing vs. long-term borrowing, issuing shares. The optimal capital structure for the organization will be one that minimizes its weighted cost of capital, thus maximizing its value.

The choices of external capital available to a healthcare organization are no different than that for organizations in general. Just about all types of external capital sources fall under one of two categories, debt or equity. Debt instruments are usually an obligation to repay a specific amount with interest at a date specified in the future, while equity instruments are an entitlement to ownership and any dividend payments on that ownership (Allis, 2005). The major types of equity instruments are common stock and preferred stock, while the major types of debt instruments are debentures, secured bonds, and bank loans.

Common stock is “equity securities representing ownership in a corporation and provides the holder with voting rights and the right to a share of the company's residual earnings through dividends and/or capital appreciation” (The Corporate Library, 2005). In contrast, preferred stock pays dividends at a set rate (e.g. annually), and the dividends must be paid before any dividends are paid to common stock holders. However, holders of preferred stock usually do not have any voting rights (Environmental Investors Network, 2005).

Debentures are bonds or promissory notes that are secured by the general credit of the issuer, but not secured by any specific assets of the issuer. That is, an organization borrows money and promises to regularly pay interest, and at a specified time pay back the original loaned amount (Wikipedia, 2005). In contrast, secured bonds are bonds that are backed by cash flow from another asset. A bank may also loan an organization money, however the organization typically needs to provide guarantees (security of assets) in case their ability to repay the loan is compromised.

Equity instruments have the least obligation on the organization’s cash flow, especially common stock, as there is no legal requirement to an annual dividend. Not having to pay back the amount invested is an advantage, however in issuing stock the owners must dilute their total ownership of the organization. Debt instruments require no dilution of ownership, but do require a regular outflow of cash to pay interest (or interest plus principle). The advantage to the bond-holder is that if the organization fails then they are senior to stockholders in payout (Overview of the Financial System, 2005).

When making the decision on which type of external capital to pursue, the board (or owners) will consider all these advantages and disadvantages above, as well as:

  • The existing level of debt and the debt service obligation that will be created through taking on more debt,
  • The impact taking on debt will have on the organization and investors,
  • The impact issuing more stock will have on the organization and investors,
  • The costs of each method

Usually organizations will try and use debt rather than equity instruments in order to access external capital. This is because “going into debt is still less expensive than selling equity and sharing profits.” (Roderick, 1990). There are many theories about why organizations will choose debt or equity. Dittmar & Thakor offer that there are two explanations currently in vogue as to why an organization will choose equity over debt:

“One is that managers time equity issues during periods of overvaluation in order to exploit irrational investors, and the other is that periods of low information asymmetry happen to coincide with periods of high stock prices. We propose an alternative theory … that managers use equity to finance projects when they believe that investors’ views about project payoffs are most likely to be aligned with theirs, thus maximizing the likelihood of agreement with investors. Otherwise, they use debt.” (Dittmar & Thakor, 2005, p.2).

Once a decision has been made to acquire capital (no matter which method), then how is the capital acquired, used & paid back? If the decision is to issue bonds, the first step is to engage a specialist in bringing bonds to the market, as the lead to the financing team, and advisor to the issuer. This may be an investment banker. The investment banker will meet with senior management to discuss the project and state of the financial market, and decide on who will make up the financing team.

If the organization is not-for-profit, then they may require approval from a government organization (e.g. state CON authority in the US). The specialist will arrange the documents required to gain this approval. The specialist will also contact the appropriate bond-issuing authority and work with it to ensure that all necessary legal work and paper work is done. If the bond is to be tax-exempt, then the specialist will arrange for a bond counsel to review and make the applicable statement.

A certified public accountant may be engaged by the specialist to conduct a feasibility study. The feasibility study will describe what the funds gained by the issuer will be used for, and present a pro forma financial statement. This financial statement will be audited, and the feasibility study signed off by appropriate legal advisors to indicate that all applicable regulations are covered. The specialist will also help the issuer to produce a prospectus for the bond, which if relevant will contain the bond counsel’s statement.

The specialist will then help the issuer to go through the rating process. As part of this they will assist the organization in preparing all the necessary documents to submit to the rating agency. There are two well known international rating agencies – Moodys, and Standard & Poors. Moodys do not specify any particular financial ratios that they focus on, instead they state that their approach to rating is to “analyze fundamental factors that will drive each issuer’s long-term ability to meet debt repayments” (Moody, 2005). Standard & Poors rating agency state in their methodology document that they will look at the following key measures (all measures taken from Rating Methodology: Evaluating The Issuer):

Profitability (p. 23):

  • Pretax preinterest return on capital;
  • Operating income as a percentage of sales;
  • Earnings on business segment assets

Primary Fixed-Charge Coverage Ratios (p.23, 24):

  • Earnings before interest and taxes (EBIT) coverage of interest; and
  • Earnings before interest and taxes and rent (EBITR) coverage of interest plus total rents.

Capital Structure / Leverage and Asset Protection Ratios (p. 24)

  • Total debt/total debt + equity;
  • Total debt + off-balance-sheet liabilities/total debt + off-balance-sheet liabilities + equity; and
  • Total debt/total debt + market value of equity

Of all the ratios measured by Standard & Poor’s, they state that cash-flow analysis is the single most critical aspect of all credit rating decisions (Rating Methodology: Evaluating The Issuer, 2005. p. 26). The Cash Flow ratios employed by Standard & Poor’s are:

  • Funds from operations/total debt (adjusted for off-balance-sheet liabilities);
  • EBITDA/interest;
  • Free operating cash flow + interest/interest;
  • Free operating cash flow + interest/interest + annual principal repayment obligation (debt service coverage);
  • Total debt/discretionary cash flow (debt payback period);
  • Funds from operations/capital spending requirements; and
  • Capital expenditures/capital maintenance.

At this point the term structure of the bond can be determined and an underwriter will step in (who may also be the same investment banker who performed the specialist function). They will supervise the preparation of an initial prospectus, and circulate this to potential investors. Once the offering date nears the underwriter and the issuer will meet and set the interest rate as well as agreeing to the set proportion of par value that the underwriter will cover. All data is checked and the final prospectus is printed.

The underwriter will “make a market” through announcing their intention to maintain an inventory of the securities, and posting bid and ask prices for the foreseeable future. This will bring confidence to investors.

If the organization plans to issue stock, then the following steps are usually undertaken. The Board of Directors must approve the offer, including the conditions of sale, and ensure that any legal requirements are met. This will be documented in Board resolutions. In some cases the approval of existing shareholders is also required before any new stock is issued.

The actual requirements will be detailed in the Articles of Association / Incorporation, including any minimum amount required to be authorized in order to allow the sale to proceed. The next step is to ensure the offering is in compliance with securities laws, and to choose the route that is most cost effective for the organization. After this has been done, a legal agreement detailing the conditions of the sale must be prepared.

During the preparation phase, the organization needs to review how the stock offering may affect any future effort to access external capital. Of course the organization should endeavor to keep as many options available to itself in the future as possible. The price and number of shares to be issued needs to be decided, and any required filings with the appropriate government institution made. Finally, the company will issue stock certificates once the sale is made (All Business, 2005).

There are various strategies that a hospital can use to influence the market that they are capable of taking on more risk and are a good investment option. Generally, when competing for funds they need to ensure that they have properly prepared the information that will be required by providers of funds, clearly showing the use of the funds, the interest or return to the provider of funds, and addressing any potential risks that may affect the ability to provide promised returns to the provider of funds.

In summary, organizations determine the need for external capital according to their strategic plan and financial status. They usually have a project they wish to pursue which promises a healthy future cash flow but which requires a large capital injection in order to get going. Organizations may acquire, use and pay back external capital using a number of different methods, which may be categorized into either debt instruments or equity instruments.

Debt instruments require that the organization make regular payments from cash flow to pay back the borrowed amount plus interest. Equity instruments do not require the organization to pay back the money invested, however the owners must dilute their ownership. The method used by an organization will depend on a number of factors including their financial condition, goals, business environment, and external capital availability. When issuing bonds to access external capital, an organization may choose to have the bond rated through a well known rating agency (e.g. Moodys, Standard & Poor’s), and these agencies will require detailed information on the applying organization in order to perform ratio analysis.


All Business. (2005). Checklist For Issuing Stock. Retrieved August 1st, 2005, from

Allis, Ryan, P. (2005). Raising Funding For Your Business. Retrieved August 1st, 2005, from

Bond Definition. (2005). Wikipedia. Retrieved August 1st, 2005, from

Dittmar, Amy, and Thakor, Anjan. (2005). Why do firms issue equity? Retrieved August 1st, 2005, from

Environmental Investors Network. (2005). Retrieved August 1st, 2005, from

Overview of the Financial System (2005). Retrieved August 1st, 2005, from

Rating Approach. (2005). Retrieved August 1st, 2005, from

Rating Methodology: Evaluating the Issuer. (2005). Standard & Poor’s. Retrieved August 1st, 2005, from (click on “2 Rating Methodology” under Credit Ratings title)

Roderick, Pamela, H. (1990). Beyond Banks. Entrepreneur Magazine. Retrieved August 1st, 2005, from

The Corporate Library. (2005). Retrieved August 1st, 2005, from


“获取外部资本的主要因素是任何组织的生存,特别是组织,很大程度上依赖于新兴技术,卫生保健提供者(麦克莱恩, 2003年,第281页) 。详细讲解如何保健机构决定的必要性,取得,使用,支付后外部资本要求。 ,在您的分析,包括必要的财务比率,标准普尔和/或穆迪的金融服务,保持标准普尔或穆迪的最高收视率。 “
( 10475 )
承诺的未来现金流通常会远远超过现在所需的资金净现值(非营利性组织) ,否则将足以维持项目和支付外部资本的成本(不非营利组织)。组织可能希望使用外部资本的另一个原因是,以现有的外部资金来源,例如再融资贷款。
普通股是“股本证券的所有权在公司,为持有人提供的投票权,并有权通过本公司的剩余收益的份额股息及/或资本增值” (企业库,2005年) 。相比之下,优先股支付股息(如每年)按设定的速度,和之前支付股息的普通股持有人必须支付的股息。不过,优先股的持有人通常不拥有任何投票权(环境投资者网络,2005年) 。
债券乃以发行人的一般信贷,但没有任何特定发行人资产抵押债券或承兑票据。也就是说,一个组织借钱,并承诺定期支付利息,并在指定的时间补回原来的贷款金额(维基百科,2005年) 。相比之下,有担保债券是债券,其他资产所产生的现金流量支持。银行可贷款组织的资金,但是该组织通常需要提供担保,资产安全的情况下他们有能力偿还贷款被攻破。
权益工具有至少组织的现金流,尤其是普通股的义务,因为没有法律规定,每年股息。不必支付取回投资金额是一个优势,但是在发行股票时,业主必须稀释他们的组织的总拥有。债务工具的所有权,不需要稀释,但需要定期流出的现金支付利息(利息加本金) 。债券持有者的优点是,如果该组织失败,那么他们都是资深的股东比率(金融系统概述,2005年) 。
通常组织会尝试使用债务而不是股本工具,以便访问外部资本。这是因为“进入债务仍然是股票和分享利润比卖更便宜。 ” (罗德里克,1990) 。有许多理论组织为什么会选择债务或股本。 DITTMAR & Thakor提供有两个组织为什么会选择债务权益超过目前流行的解释:
“一个是经理期间高估为了公平问题,利用非理性的投资者,另一个是那个时期的低信息不对称与股票价格高企的时期不谋而合。我们提出了另一种理论,管理者利用权益融资项目时,他们认为,投资者的意见是最有可能与他们有关项目的回报,从而最大限度地提高与投资者的协议的可能性。否则,他们使用的债务。 “ ( DITTMAR & Thakor , 2005年,第2页) 。
一旦决定已经作出收购资金(不管哪一种方法) ,然后是资本如何获取,使用及归还?如果是发行债券的决定,第一步是要聘请专家带来债券市场,作为领先的融资团队,发行人的顾问。这可能是一个投资银行家。投资银行家将与高级管理人员会面,洽谈项目和金融市场的状态,决定将弥补融资队。
如果组织不以营利为目的,那么他们可能需要一个政府机构的批准(如状态CON机关在美国) 。专家会为您安排所需的文件获得批准。专家也将联系合适的发债机构,共同努力,确保完成所有必要的法律工作和纸工作。如果债券是免税的,那么专家会安排债券律师​​进行审查并提出适用的语句。
然后,专家将帮助发行人评级过程。作为这项工作的一部分,他们将协助组织准备所有必要的文件,以提交给评级机构。有两个国际知名评级机构 - 穆迪,标准普尔。穆迪不指定,他们专注于任何特定的财务比率,而不是他们的国家,他们的评级方法是“分析的基本因素,将推动各发行人的长期能力,以满足偿还债务” (穆迪,2005年) 。标准普尔评级机构在他们的方法文档的状态,他们将着眼于以下主要措施(从评级方法所采取的一切措施:评估发行人) :
盈利能力(第23页) :
税前资本回报preinterest ;
主要固定费用偿付比率(第23页,24) :
盈利利息及税项前( EBIT )利息覆盖率;
利息及税项前盈利和的租金( EBITR )覆盖利息加总租金。
标准普尔测量所有的比率,他们指出,现金流分析是一个最关键的环节,所有的信用评级的决定(评级方法:评估发行人, 2005年,第26页) 。标准普尔采用的现金流量比率如下:
从营运资金/总债务(调整后的资产负债表的负债) ;
经营性现金流+利息/利息+的年度本金还款义务(债务服务覆盖率) ;
债务总额/自由支配的现金流(债务投资回收期) ;
此时债券的期限结构可以被确定,将加强承销商(也可能是相同的投资银行家,谁执行的专业功能) 。他们将监督初始招股说明书的编制,并分发这种潜在的投资者。一旦发售日期的临近承销商和发行人将满足设定的利率以及同意包销商将涵盖面值的设置比例。所有数据进行检查,并最终招股说明书的印刷。
在准备阶段,组织需要检讨如何发行股票的任何可能影响未来的努力来访问外部资本。当然,组织应努力保持许多可供选择尽可能在未来。将予发行股份的价格和数量的需要来决定的,任何需要提交相应的政府机构。最后,该公司将发行股票证书, ,一旦销售(所有业务,2005年) 。
所有业务。 (2005年) 。发行股票的清单。 2005年8月1日,从
阿利斯,瑞安, P. (2005) 。为您的企业的筹资。 2005年8月1日,从
债券的定义。 (2005年) 。维基百科。 2005年8月1日,从
DITTMAR ,艾米和Thakor ,安键。 (2005年) 。为什么做企业发行股票? 2005年8月1日,从
网络环境投资者。 (2005年) 。 2005年8月1日,从
金融系统概述(2005年) 。 2005年8月1日,从 ~ mjperry/Money2.htm
评级方法。 (2005年) 。 。 2005年8月1日,从
评分方法:评估发行人。 (2005年) 。标准普尔。检索2005年8月1日,从(点击信用评级标题下的“评级方法论” )
罗德里克,帕梅拉, H. (1990) 。除了银行。企业家杂志。 2005年8月1日,从
Corporate Library的。 (2005年) 。 2005年8月1日,从