Small Business Finance: A Case Study of Two Australian Firms Recently Listed in the Australian Stock Exchange You 220078861 AFM422, Small Business Finance Length: 1,138 words Dr. Michelle Goyen October 3th, 2011 Small Business Finance: A Case Study of Bega Cheese Company and Cradle Resources Company Limited According to the Bega Cheese company website, Bega Cheese Company was formed in 1899. The company website also states that it the company manufactures cheese, producing about twenty thousand tonnes of butter, whey powder and cheese annually. The website asserts that company also produces fifty thousand tonnes of value added cheese per annum.
The value-added cheese is packed in slices and distributed to retail shops. According to Australian Stock Exchange, Bega cheese limited was listed in the Australian Stock Exchange on August 19, 2011. Cradle Resources Company Limited, on the other hand, is an Australian company dealing with mineral drilling and exploitation as Australian Stock exchange website states. The Cradle Resource Company website states that the Company also deals with exploitation and development of economic minerals. It was officially listed in the Australian Stock Exchange on September 16, 2011 according to the Australian Stock Exchange website. The Bega Cheese Company website provides a brief history of the company.
The Bega is wholly owned by dairy farmers in North Bega, Australia. Bega was a cooperative society until its listing in the Australian Stock Exchange. It was headed by a chief Executive officer who reported directly to the farmers. The company seeks to add finance in order to get more money to invest in the market. Bega Foods has secured many contracts since its listing in Australian stock exchange. For example, the company was awarded a contract on 7th September 2011 to supply the Coles’ brand of cheese.
Bega has used the listing in the company to improve its image so that it can gain a competitive advantage over its competitors. The Australian Stock Exchange states that Cradle Resources Company is managed by three board members, including the board chairman. The company also had a company secretary in charge of all legal matters of the company. Cradle Resources deals with exploitation and development of minerals which require the huge amount of resources.
According to the Cradle website the main reason for Cradle Resources Limited to list on Australian Stock Exchange is therefore, to seek capital to expand its activities in Pilbara, Northwest of Western Australia. Cradle is focusing its activities on exploitation of iron and metal assets in Western Australia and beyond. The share offer of both companies was underwritten. Iannotta (2010) defines an underwriter as an investment financial institution such as an insurer or investment bank that initiates the public offer for shares of a particular company. The main reason for underwriting is to provide additional finance for the company and purchase the remaining unsold shares (Iannotta, 2010). The underwriter becomes a shareholder in the company until the shares are sold.
The company has to pay the underwriter a premium for the shares that are underwritten. According to Australian Stock Exchange website, Bega’s initial public offering was met with excitement as investors rushed to buy shares from the company. Cradle, on the other hand, is a mineral exploitation company. Mineral exploitation ventures to have the longer payback period. Although mineral exploitation has a longer payback period, the returns are high.
Cradle shares are falling as Bega’s stock price continues to rise. Furthermore, the two companies had to find underwriters as required by law under the Australian Stock Exchange Act (Dagwell et al, 2007) According to Gerven (2008), a company must lay down all the major decisions that a potential investor requires to know such as activity of the company issuing shares, issue of shares, the sale of shares and the payment of dividends. Gerven (2008) says that a prospectus also shows the financial position of a company issuing shares.
The company’s financial position is shown through financial reports found in the prospectus and gives a brief history of the directors or the legal owners issuing shares. Gerven (2008) emphasizes that the prospectus must show the material gains that a potential investor is going to gain from investing in shares of the issuing company. The prospectus for the both companies had such signals as the name of the company issuing shares and the location, plan for using the money, terms and conditions of purchase and engagement.
In the prospectus of both companies, found in the company’s website, all ordinary shares were to be fully issued and paid. The prospectus shows how shares have been allocated to various investors. Any company and employees who have already been allocated shares are clearly shown in the prospectus. The number of shares that the public will purchase is clearly shown by the prospectus. According to the prospectus, the initial public offer for Bega was 1.802 dollars per share. The investors looking to purchase the Bega cheese limited shares were limited to purchase up to 1000 shares.
The initial public offer of Cradle Resources Limited, as stated in the prospectus, was 0.0210 with every investor limited to purchase a minimum of two thousand shares. Bega Cheese Company and Cradle Resources Limited do not qualify to become small business. The reason for this argument is that the companies are well established with no strain in financial capabilities. O’Berry (2010) states that small companies are often faced with financial difficulties. Many small firms use their resources to finance their activities because they cannot access finance from the public easily.
For the Cradle Resources Limited and Bega Cheese Company, they do not want to use their resources such as long-term and short term assets in order to expand their business because they are well established and can access finances more easily from the public. In 2010, O’Berry defined a small business is a firm that is owned privately, and the operation of small business is not public. Small businesses are characterized by a small number of employees. According to Bega cheese Company, the Company has over five hundred and fifty employees.
O’Berry (2010) asserts that Small businesses are characterized by low sales turnover. In Australia, a company with less than fifteen employees is a small company. Small companies normally do not shine in their line of operations. Brigham and Ehrhardt (2009) note that small businesses are small; small businesses are faced by various Challenges due to the nature of their sizes. Some of the challenges that small business face include poor management skills, planning poorly and lack of adequate capital. However, Brigham and Ehrhardt (2009) acknowledge that there are some advantages that a small business enjoys that large and medium-sized company cannot enjoy.
Small companies enjoy a little startup capital which has less legal procedure. The decision-making in small business is fast because there is no protocol of making decisions. In most cases, small businesses are independent as the firms are one hundred percent owned and managed by the owners. Small businesses are flexible and can change their line of business in a very short time unlike large business, which requires consultations (Brigham & Ehrhardt, 2009). References Gerven.
D. (2008). Prospectus for the Public Offering of Securities in Europe. Cambridge: Cambridge University Press. OBerry, D. (2010). Small Business Cash Flow: Strategies for Making Your Business a Financial Success. Hoboken, NJ: John Wiley & Sons. Brigham, F. E and Ehrhardt, M.C. (2009). Financial Management Theory and Practice. Mason, OH: Southwestern Cengage Learning. Dagwell, R. (2007). Corporate accounting in Australia. Sydney: University of New Southern Wales Press Limited. Iannotta, G. (2010). Investment Banking: A Guide to Underwriting and Advisory Services. London: Springer Heidelberg.