|
Post by account_disabled on Feb 11, 2024 9:32:11 GMT
The new capital received can be used to invest in new assets or can be used to purchase currently outstanding debtequity as a form of recapitalization. Capital structure by industry Capital structures can vary significantly across industries. Cyclical industries such as mining are generally not suitable for debt because their earnings or cash flow profiles can be volatile and their ability to repay debt is extremely vulnerable. Some other industries such as insurance and banking are highly leveraged and their Armenia Email List business plans require large amounts of debt. It can be more difficult for private businesses to use debt instead of equity especially small companies that must have personal guarantees from their owners. How to recapitalize a business. that decides to improve its capital structure by changing its debttoequity ratio can do so in two ways. Here are some ways they can try . Issuance of debt and repurchase of shares. Capital structure In this case the firm raises money by issuing debt then uses all the capital to buy back shares from its equity investors. This increases the amount of debt and decreases the amount of equity on the balance sheet. . Issuing debt and paying huge dividends to equity investors In this case the firm borrows money ie. issues debt and can then use that money to pay a onetime special dividend which further reduces the cost of equity by the amount of the dividend.
|
|