Merits of raising capital through the issuance of Bonds or through Essay

Merits of raising chapiter done the emergence of Bonds or through issuance of Stocks - Essay ExampleMerits of raising expectant through the issuance of Bonds or through issuance of StocksMarvin Appel emphasized that corporate bonds are debt instruments issued by organizations. And, unlike government which is very least likely to default, on that point is always risk that a corporate business may non be able to pay its obligations to the bondholders (10). Matt Evans discussed few advantages of issuing bonds to raise capital for a companys operations. Some of these advantages are 1. Interest payments made to bond holders are tax income deductible as reflected on the issuing mickles income statement 2. Bond issuances do not dilute earnings per share or decrease control within the company 3. Usually, cost of bonds issued is laid interest and principal do not change within the life of the bond and 4. Expected return of investment to investors is usually lower than ROI on stocks. F or tax purposes, legitimate interest expense payments to banks, financial institutions, and other investors are deductible from income before tax. This will include interest or coupon payments to bondholders of the sight which issued bonds. This is take apart of the benefits of using finances from debt financing to augment business performance and the same time paying less tax with respect to the companys income for a covered period. By issuing bonds, it does not change the control structure of a corporation. Equity holdings of stockholders will remain the same also the same ft for earnings-per-share consideration. On the other hand, Evans also pointed out advantages for a company raising capital through the issuance of stocks. These include a. Stocks have no fixed payments involve to investors investors will receive return of investment based on profits b. There is no maturity date on the stocks certificate and invested capital does not have to be repaid within a fixed period a nd c. Issuing stocks will improve the credit worthiness of the company. At the companys standpoint, issuance of stocks to raise capital is the cheapest way to finance business operations contrary to bonds. Unlike bonds, there are no scheduled payments for coupon and bulk of funds upon maturity. Shareholders will get income from their investments through dividends if they opt to hold their stocks for a longer period. By issuing stocks, the generated funds will improve ratios like current ratio, acid-test ratio, and debt equity ratio that are of significant considerations for financial statement users. Moreover, if a company continues to have negative results of operations, the invested capital by the stockholders may be absorbed by the loss. That is why it is regarded as the cheapest way to finance business operations. By its nature, stock holdings are not guaranteed in terms of return of investments. B. Risks of raising capital through the issuance of Bonds or through issuance of S tocks Bonds are debt instruments and usually they are huge fund obligations to pay in the future. Ian Giddy had stated that when a corporation borrows up to its capacity, it loses its flexibility of financing some more future projects through debt financing. The corporation that is issuing bonds should continue to perform well in business to pay off profit enough to pay back its obligations on bonds (Appel 29). If an issuing corporation will default in paying obligations on bonds, it has a negative come to to the organization in different aspects in the bond market and in the industry. It can be regarded that in the companys perspective, debt financing through bonds is an high-priced way of raising capital