This lesson examines equity as a source of funding and the management of equity instruments.

6.1 Equity Markets

Equity markets provide companies with a permanent source of capital. Key topics include:

• Initial Public Offerings (IPOs): The first sale of a company’s shares to the public.

• Secondary Offerings: Subsequent issues of equity.

• Private Equity and Venture Capital: Private sources of equity funding.

The DCU module addresses “Corporate Financing Decisions, raising funds via IPO, Private Capital (including Private Equity, Private Credit and Venture Capital)” .

6.2 Dividend Policy

Dividend policy is the decision of how much profit to distribute to shareholders versus reinvesting in the business. The ACT DipTM syllabus requires candidates to “examine the use of equity markets as a source of capital and the importance of managing shareholders” . Key considerations include:

• Dividend Payout Policy: The proportion of earnings paid as dividends.

• Share Buybacks: Companies repurchasing their own shares to return capital to shareholders.

• Dividend Irrelevance Theory: In perfect markets, dividend policy does not affect firm value.

• Signalling: Dividends can signal management’s confidence in future earnings.

6.3 Equity vs. Debt Financing

The House of Training course covers Equity Management, including equity issues, dividend payout policy, and share buybacks . The decision between debt and equity financing involves balancing the tax benefits of debt against the flexibility and lower financial risk of equity. The ACT DipTM syllabus requires candidates to “recommend optimal capital structures” .

6.4 Equity Management in Treasury

Treasury plays a role in managing equity-related transactions, including:

• Administering dividends and the issue or repurchase of stock .

• Managing share buyback programmes.

• Supporting investor relations activities.