This lesson examines equity as a source of long-term funding and the role of equity markets in the corporate capital structure. The CTP curriculum includes a dedicated “Equity Market” section .

3.1 The Role of Equity in the Capital Structure

Equity represents ownership in a company. It is the most senior form of capital and provides a permanent funding base for the organisation. Unlike debt, equity does not have to be repaid, but it is the most expensive source of capital because it carries the highest risk for investors. The CTP syllabus includes “Raising Long-Term Capital” and the “Capital Structure Decision” as core topics .

3.2 Equity Issuance and the Primary Market

Companies can raise equity capital through several routes:

  • Initial Public Offering (IPO): The first sale of a company’s shares to the public, transforming it from a private to a public company .

  • Seasoned Equity Offerings (SEOs): Subsequent offerings by an already-public company to raise additional capital.

  • Private Placements: The sale of shares to a select group of institutional investors without a public offering .

3.3 Equity Valuation

Valuing equity is a core skill for treasury professionals. Two common methods are:

  • Discounted Cash Flow (DCF) Model (Dividend Discount Model): Values a stock based on the present value of its expected future dividends .

  • Multiplier Model (Comparables): Values a stock by using multiples like the Price-to-Earnings (P/E) ratio or Price-to-Book (P/B) ratio relative to comparable companies .

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