Equity issuance

Raising capital by selling new shares. Costly, through underwriting fees and because investors may read it as a sign management thinks the shares are overvalued, so firms tend to use retained earnings and debt first.

Where you will meet it

Equity issuance appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain how a forecast model for a share projects sales, margins, investment and funding
  CFA Level I · Equity Investments

  “Investment is forecast as capital expenditure and working capital needs consistent with the growth assumed, and financing as the mix of debt, equity issuance, dividends and buybacks that funds it.”

• Explain what signals a company may send by starting, raising, cutting or omitting its dividend
  CFA Level II · Corporate Finance

  “The reading is not automatic: a cut clearly explained by profitable investment opportunities, or needed to avoid costly equity issuance, can be neutral, while an initiation might hint that the company has run out of good projects.”

See also

Retained earnings

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with E · Glossary