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When should a company issue debt instead of issuing equity?

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Question added by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies
Date Posted: 2015/04/25
Anas  Dawah
by Anas Dawah , Senior Internal Auditor , Talal Abu-Ghazaleh Global (TAGI)

Debt is preferable for the following reasons: A. It is less risky and cheaper source of financing B. It provide a tax shield C. It help us to maximize the return on invested capital ( financial leverage ).

Jafar Hussain Bhalam
by Jafar Hussain Bhalam , Assistant Finance Manager , Giesecke & Devrient FZE

Companies often use debt when constructing their capital structure which have following main features:

  - Lower cost

  - Financial leverage

  - Tax saving

  - Retain control

  

Murtaza Sidhpur wala
by Murtaza Sidhpur wala , Accountant and Inventory Manager , Khalid -Al-Dabbus Tailoring Material Co. W.L.L

1) A company may raise debt capital to built its optimum capital structure.

 

2) debt is less risky than equity is in the event of a liquidation, debt holders would receive their capital repayment before share holders.

3) Debt is also cheaper than equity from a company’s perspective is because of the different corporate tax

 

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