Equity Funding vs. Debt Financing: American Superconductor Case Analysis

The company position is strong enough so its better that company should use debt financing instead of equity financing.

2) The higher ratio of Debt to Total Equity may result to the lower of the debt credit rating. The lower of the credit rating will result to increase of the interest rate which will cost more to the company.

In Harper Lee’s To Kill A Mockingbird courage is defined as standing up for what one believes in. Throughout the part one of the book Atticus stands up for what he believes in even though he is heavily criticized. Out of every character introduced so far Atticus has shown by far the most cnjourage. Scout and Jem show courage by trying to communicate with Boo Radley even though all of the terrible rumors.

The Debt-Equity Ratio shows that most of the capital was in terms of ordinary shares and is becoming more reliant on Shareholders Equity than on debt to finance operations.

In general, using external funds, i.e. debt or equity, to finance increasing growth is riskier to the corporation. When issuing debt the company needs to be certain to cover both the repayment of the principal and the interest payments on time (because if they do not this could cause them to have problems securing financing in the future). When issuing additional shares of stock (equity) the value of existing traded stock is diluted (in proportion) and as such the current ownership might lose control (and may even be voted out by shareholders if dilution is substantial enough). Furthermore, with both debt and equity financing, a fast growing company needs to be aware that payments to either may hamper future expansion because payments that need to be send out in the forms of dividends or interest cannot be retained and invested in future projects.

Although riskier, debt financing helps company have a better financial structure and because Blaine Kitchenware refuses to do so, we agree that their capital structure and pay out policies are not the most appropriate for the firm.

If the financing of the project comes partially from issuing debt and cash infusion from the owners, the available cash will increase without as much interest expense. This will cause the company books to look bad because of lower EPS, however the company will have a choice not to pay dividends if necessary rather than being bound to pay interest expense.

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There is no universal theory of the debt-equity choice, and no reason to expect one. In this essay I will critically assess the Pecking Order Theory of capital structure with reference and comparison of publicly listed companies. The pecking order theory says that the firm will borrow, rather than issuing equity, when internal cash flow is not sufficient to fund capital expenditures. This theory explains why firms prefer internal rather than external financing which is due to adverse selection, asymmetry of information, and agency costs (Frank & Goyal, 2003). The trade-off theory comes from the pecking order theory it is an unintentional outcome of companies following the pecking-order theory. This explains that firms strive to achieve an

6. Yes, we think that it is better for the society if companies use debt. This allows people who have extra funds and need to invest it to earn interest revenue on their funds. Debt is generally less risky than equity investing because as we know debt has certain maturity date and

Now I will discuss the pros and cons of the alternative decision, which is a combination of the debt and equity methods. A positive of this method is that the instrument is split between debt and equity. The company could just split it up 50/50 between the two methods. Also if they had too much debt, they could account for the instrument with 20% as debt and 80% as equity. This would make it look as if they do not have too much debt or too much equity. This method would be an advantage, if the company were looking to get more financing in the future.

If external financing is required, the “safest” securities, namely debt, are issued first. Although investors fear mispricing of both debt and equity, the fear is much greater for equity. Corporate debt still relatively little risk compared to equity because, if financial distress is avoided, investors receive a fixed return.. Thus, the pecking order theory implies that, if outside financing required, debt should be issued before equity. Only when the firm’s debt capacity is reached should the firm consider equity.

Project finance transactions are typically either (i) limited recourse, where lenders do not assume the entire financial risk of the project and instead rely on mechanisms such as completion guarantees or parent guarantees, or (ii) non-recourse, where the revenues generated from the project and the project’s assets repay the indebtedness owed to the lenders. In addition to providing funds to complete new projects, the scope of project finance also allows project companies to expand existing projects or refinance existing indebtedness on existing projects at more favorable terms.

Firstly, interest on debt is tax deductible, therefore, debt is the least costly source of long-term financing as this is a tax saving for the frim. Thus, creditors or bondholders require a lower return on debt as it is considered a reflectively less risky investment. Secondly, the capital structure of a firm is flexible due to debt financing. Ultimately, bondholders are creditors and they do not have voting rights, hence, they are not involved in decision making and business operations. Additionally, the major advantages of equity finance are as follows. Firstly, the capital provided is to finance the businesses short term needs and future projects. Secondly, the business will not have to pay any additional bank expenses such as interest on loans, thus allowing the business to use the money for business activities. Lastly, investors anticipate that the business will develop thus they help in exploring and executing thoughts. Certain sources, for example, venture capitalists and business angel can bring significant skills, abilities, contacts and experience to businesses and they can also provide expertise advice to businesses (Hofstrand,

Debt and equity financing are your two basic options to raise money for a start-up company or growing business. Debt financing includes long-term loans you get from the bank. Equity financing is private investor money you get in exchange for a share of ownership in the business. Now I want to explain about the advantages and disadvantages of using equity capital and debt capital to finance a small business's growth. The advantages of Debt is financing allows you to pay for new buildings, equipment and other assets used to grow your business before you earn the necessary funds. This can be a great way to pursue an aggressive growth strategy, especially if you have access to low interest rates. Closely related is the advantage of paying off your debt in installments over a period of time. Relative to equity financing, you also benefit by not relinquishing any ownership or control of the business. Interest on the debt can be deducted on the company's tax return, lowering the actual cost of the loan to the company. Raising debt capital is less complicated because the company is not required to comply