Agriculture Reference
In-Depth Information
Preferred stock
Preferred stock
is the stock to which a corporation shows preference. In the event of the
liquidation of the corporation, the owners of preferred stock would be repaid before holders
of common stock. Most preferred stock also has a defi nite annual dividend rate, which means
that it would pay a percentage (say 6 percent) of the face or issue value on an annual basis.
Sometimes corporations will reserve the right to defer this dividend until a later date should
the corporation have fi nancial diffi culties. In exchange for its preferred nature in the event of
liquidation, most preferred stock does not carry with it any voting rights or control in the
management affairs of the corporation.
Other internal fi nancing
Partnerships may secure more capital by selling portions of their business to others who are
willing to risk their money in the business. These others may be either general or silent part-
ners. A general partner assumes the same rights and liabilities as other partners, while a
lend money to the business just as any outside creditor would, if that owner does not wish to
commit any additional funds on an equity basis.
Summary
As the agribusiness manager strives to turn everything that he or she touches into gold, it is
important to remember that not all sources of fi nancial help are equally useful or equally
applicable to all situations. The securing and managing of the fi nancial resources of
any agribusiness fi rm is a complex function, but careful attention to the tools, techniques,
and principles discussed in this chapter will increase the agribusiness manager's chances of
success.
The agribusiness manager needs to know the various kinds of loans, the cost of borrow-
ing, and whether short-, intermediate-, or long-term capital is needed. The manager
must explore all sources of capital to discover whether borrowing, equity fi nancing, or some
combination thereof is best for the particular agribusiness involved. But even more impor-
tantly, the manager's ability to assess the optimum amount to be borrowed, and to formulate
a realistic plan for repayment, will make the agribusiness's fi nancial strategy a fi rm and
steady foundation for the future.
Financing the agribusiness is a necessary and important management responsibility.
Money must be available to fi nance capital purchases and operate the business on a day-in,
day-out basis. There are three primary sources of capital: borrowing, funds generated from
business operations, and additional investments from owners.
Borrowing can take many forms. Short-term loans of a year or less are normally used
to fi nance seasonal business needs. Intermediate-term loans of one to fi ve years are generally
used to purchase equipment or fi nance increases in the volume of business. Long-term
loans are usually for major business expansion, such as buying land and erecting buildings.
Interest rates and repayment schedules vary according to a great many factors, including
time, risk, amount of money borrowed, past experience, and the soundness of the fi rm's
fi nancial base.
Some agribusiness fi rms gain the control and use of assets by leasing those assets. Leases
can be for a short period of time, such as days or months, or for longer periods of time that
