Skip to content

ACCA Applied Skills · Financial Management · Finance for small- and medium-sized entities (SMEs)

Which of the following best describes the 'equity gap' faced by small and medium-sized entities (SMEs) seeking finance?

The equity gap is the shortage of equity funding for amounts that are too large for owners and informal investors but too small to interest institutional investors or justify a stock market listing, because of the costs and minimum sizes involved.

  1. AThe difference between an SME's book value of equity and its market value of equity
  2. BThe shortage of equity funding for amounts too large for owners and informal investors to supply but too small to be attractive to institutional investors or a stock market listingCorrect
  3. CThe gap between the dividend yield on an SME's shares and the return required by shareholders
  4. DThe difference between the equity and debt proportions in an SME's capital structure

Explanation

The equity gap arises because SMEs often need moderate sums of equity that are beyond the personal resources of owners, family and friends but below the minimum size that makes venture capital firms, institutional investors or a market listing economic. The other options describe unrelated valuation, return or gearing concepts.

Did you get it right without looking?

One question tells you little. A timed set on Finance for small- and medium-sized entities (SMEs) shows your real accuracy, how long you take and where you lose marks.

Practise Finance for small- and medium-sized entities (SMEs)Free diagnostic mock

More Finance for small- and medium-sized entities (SMEs) questions