Analyse why a public limited company might prefer to use share capital as a source of f... - AI essay feedback

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Analyse why a public limited company might prefer to use share capital as a source of f... - AI essay feedback

Using share capital as a source of finance is when shares within the public limited company are sold to raise finance, whereas a bank loan is a long term loan provided by banks that also have an interest rate fee which needs to be paid as an additional cost to the loan . Cost of borrowing. Share capital can be seen as more practical for a public limited company as no interest is payed back by the business which would be an additional cost for the business. This means that total costs will not be affected by additional fees, so, total profits will not be minimised. This can lead to a more positive and stronger cash flow for the business per annum. Whereas when using a bank loan, a cost of borrowing fee is incurred which increase total costs for the business. This could significantly harm the business cash flow during periods of low profit, putting them in a weaker position during periods of low revenue. Furthermore, as shares are sold on the London stock exchange and can be accessed by anyone worldwide. This means that there is more opportunity for investment worldwide, leading to more share capital available for the business to use. This means that with share capital you can raise more finance as opposed to a bank loan where funds available may be limited as banks are unwilling to loan large sums of funds. This could lead to the business having a stronger cash flow and therefore more finance available to invest in the business

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Mark

8/9

Paragraphs Feedback

The first paragraph provides a clear definition of share capital and bank loans, which is a good start. However, it could be improved by explicitly stating the advantages of share capital over bank loans right from the beginning. For example, you could mention that share capital does not require repayment, which is a key benefit.
In the second paragraph, you effectively discuss the impact of interest on cash flow. To enhance this section, consider providing specific examples or data to illustrate how interest payments can affect a company's financial health, especially during low profit periods.
The third paragraph introduces the idea of global investment opportunities through the stock exchange, which is a strong point. However, it would be beneficial to elaborate on how this wider access to capital can lead to specific growth opportunities for the business, such as funding new projects or expanding operations.

What Went Well

The essay demonstrates a good understanding of the differences between share capital and bank loans. It effectively highlights the lack of interest payments associated with share capital, which is a significant advantage for public limited companies. The mention of global investment opportunities is also a strong point that adds depth to the analysis.

Even Better If

To achieve a higher mark, the essay should include more detailed analysis and examples to support the points made. Additionally, addressing potential drawbacks of share capital, such as dilution of ownership or the need for ongoing shareholder engagement, could provide a more balanced view and enhance the depth of the analysis.

Overall Feedback

Overall, the essay provides a reasonable analysis of why a public limited company might prefer share capital over bank loans. It covers key points such as the absence of interest payments and the potential for greater investment. However, to reach a higher mark, the response would benefit from more detailed examples, a deeper analysis of the implications of each financing option, and a consideration of the potential downsides of share capital.