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Reduce debt by 40% - 60%. Debt Free in 12 - 30 months
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Introduction to sources of capital such as capital generated internally, capital from trade creditors, borrowed money, and equity investments from investors.
www.bizmove.com
Links to capital financing articles in various publications.
www.bpubs.com
Article in businessfinancemag.com that details the different short-term financing strategies available to corporations.
www.businessfinancemag.com
Article in businessfinancemag.com that describes the hierarchy of borrowing with specific attention paid to revolving credit.
www.businessfinancemag.com
Article in businessfinancemag.com that explains some of the recent developments in off-balance-sheet financing.
www.businessfinancemag.com
A discussion of a firm's optimal capital structure and dividend payout decision, using the Modigliani-Miller model as a guide. Also discusses valuation of firm's equity as an option.
www.duke.edu
Paper describes how financial disruptions affect investment and interest rates in a general equilibrium economy. By Miguel Cantillo Simon, UC Berkeley, June 1997. Requires Acrobat Reader.
www.haas.berkeley.edu
A joint determination of capital structure and investment risk is examined. By Hayne E. Leland, April 1998. Requires Acrobat Reader.
www.haas.berkeley.edu
Argues that the value of diversification activities may increase or decrease the principal's information, depending on the particular structure of the activity. By Benjamin E. Hermalin and Michael L. Katz, UC Berkeley. Requires Acrobat Reader.
www.haas.berkeley.edu
Working paper by Petya Koeva that presents empirical evidence about the process of plant investment.
www.imf.org
A comment that shows the new test of the Pecking Order Model by Shyam-Sunder and Myers (1999). By Robert S. Chirinko and Anuja R. Singha, May 2000. Requires Acrobat Reader.
jfe.rochester.edu
Survey of CFOs on the practical implications of corporate finance theory.
jfe.rochester.edu
Offers customized advisory services, including capital raising and marketing strategy development for private middle-market companies.
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A study of the effect financial constraints place on stock returns, and factors that determine the magnitude of the effect. Requires Adobe Acrobat.
papers.ssrn.com
An analysis of the sensitivity of a firm's capital structure to different variables, including: changes in interest rates, macroeconomic variables, and term structure decisions.
www.stern.nyu.edu
A detailed examination of the process a firm undergoes to determine its optimal capital structure. In-depth analysis of calcualting the weighted average cost of capital (WACC) (pdf version, requires Adobe Acrobat).
www.stern.nyu.edu
A spreadsheet for determining the optimal capital structure for a firm using the weighted average cost of capital method and holding operating income levels steady.
www.stern.nyu.edu
A spreadsheet to determine the optimal capital structure of a firm using the weighted average cost of capital method, allowing operating income to vary over different debt to equity levels.
www.stern.nyu.edu
A discussion of the debt or equity tradeoff as a corporation determines its capital structure (pdf version, requires Adobe Acrobat).
www.stern.nyu.edu
A brief overview of debt and equity financing.
www.toolkit.cch.com
An examination of how to obtain financing for small businesses, including private and public sources of funds.
www.toolkit.cch.com
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Guide to Corporate Financing Decisions
Find the correct balance of equity and debt in corporate financing decisionsThere are several prominent economic theories that influence corporate financing decisions, the pecking order and trade-off theories to name two. However, with so many outside factors like government regulations governing interest rates and the financial viability of your company, it is ultimately a fluid situation where there is no right answer, only one that's best for your company. No matter what the financial circumstances of your company, there are a few items to consider before making any corporate financing decisions:
1. Understand the benefits of corporate debt.
2. Use the pecking order theory to analyze debt financing decisions.
3. Utilize the trade-off theory to offer an alternative view of corporate financing decisions.
Action Steps
The best contacts and resources to help you get it done
Study the business tax code and corporate debt
The main benefit of corporate debt is the tax advantages for your company because the debt is deductible from the year-end tax figure. However, regulations governing this advantage have changed over time and will continue to change. That is why any business should research current tax laws before making any debt financing decisions. The primary drawback is that your business will now owe another entity for this debt and be liable for terms of the debt financing agreement.
I recommend:
Read the latest news on corporate taxes and how they impact your business debt financing decisions. The IRS has detailed information that can help a business understand just how the tax laws impact debt decisions.
Examine the pecking order theory and how it applies to corporate financing
The pecking order theory states that corporate financing needs should come from cash, debt and equity in that order. In the pecking order theory, corporate financing decisions come through the path of least resistance and to only use equity financing as a last resort.
I recommend:
Research the pecking order theory to determine if the theory meshes with your companies debt objectives. A student at Mesa State College offers up this argument on why the pecking order theory is correct. Read Modern Corporate Finance: An Interdisciplinary Approach to Value Creation to get a better understanding of the theory.
Evaluate the use of the trade-off theory in corporate financing decisions
To attain optimal financing decisions using the trade-off theory of capital financing, you need to understand the principles behind the theory. The trade-off theory states that a corporation should use a balance of debt and equity in all corporate financing decisions. The trade-off theory also espouses the tax benefits of debt financing. This theory is a competitor to the pecking order theory.
I recommend:
Analyze the trade-off theory in detail as it pertains to your company’s debt financing decisions and tax benefits. The Journal of Applied Corporate Finance has excellent information on the trade-off theory and things relative to corporate financing decisions.
Tips & Tactics
Helpful advice for making the most of this Guide- Corporate financing decisions not only affect the corporate bottom line but the stock price of the business if it is a publicly traded company. Too much financed debt can cause investors to be wary of that stock. Conversely, too little debt gives rise to shareholder concern over proper use of the credit system. It is important to find the right balance to make current and potential shareholders content.
At Bizcap we can provide you with best guidance and resources possible to mold the financial stability of your company. Contact us!
Contact us | Services
Offers customized advisory services, including capital raising and marketing strategy development for private middle-market companies.
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