FINANCIAL MANAGEMENT

Financial Management

Financial Management

PART 1 (A)

Alternative Investment Market

Alternative Investment Market (AIM) is a market for corporate SHARES and STOCKS that have not obtained a full STOCK MARKET listing. An unlisted securities market (USM) was established in the UK in 1980 in order to provide smaller companies with a means of raising new capital (see SHARE ISSUE) without the expense and the same formalities required by the main stock market (Mallin, 2008). The USM was phased out in 1996 and superseded by the Alternative Investment Market (AIM). AIM imposes no minimum on the percentage of a company's shares in public hands and no minimum trading record. Companies listed on AIM tend to be smaller and higher-risk than their LSE counterparts. Because of the size and nature of many of the businesses on AIM, there is less liquidity in the market than in the LSE; as a result, shares tend to be more volatile (Smith & Watts, 2002).

PART 1 (B)

Aim Rules: The Basic Requirements for Eligibility

In order to be eligible for the AIM listing, a company must meet following eligibility requirements.

The company must be a public limited company.

The company accounts must meet a recognized standard (Financial Reporting Standards Board).

The company must issue a prospectus on regular basis.

The company must meet the European Union's Public Offer of Securities Regulation. 

The company must have a nominated adviser.

The company must have a nominated broker (Smith & Watts, 2002).

PART 1 (C)

Difference between Alternative Investment Market (AIM) and the Main Market

Main Market of the London Stock Exchange (LSE) differs greatly from Alternative Investment Market on the basis of regulations and company listing/registration terms on the stock exchange. In order to register in the Main Market of LSE, a company has to have a minimum capitalization of 700,000 pounds. Contrastingly, AIM does not have minimum requirement on the percentage of a company's shares in public hands and no minimum trading record (Mallin, 2008).

AIM does not require a company to have a track record or issue profits forecast as in case of Main Market. In order to register for the Main Market, a company must have three years published audited financial statements. Contrastingly, no such regulation exists for the AIM market eligibility (Mallin, 2008). Main Market requires minimum public float (25 per cent) and sufficient working capital for at least 12 months from the date of listing. However, there is no such restriction for companies listed on AIM market (Smith & Watts, 2002).

PART 2 (A)

Needs of Dividend Policy for Company

Dividends payment result in reducing the reducing the plowback ratio of funds that the company can reinvest in the business for future growth. This requires placing greater burden on other sources of financing to continue the business operations. Dividend payment works best in situations when a company has sufficient volume of funds for business operations. This shows that policy of paying dividends is directly connected with the capital structure management decisions. Majority of newly formed companies do not pay out dividend on its share to shareholder and plowback all funds for future growth and expansion ...