Quote:
Originally Posted by olusolakemmy
Hey, every
i think foreign investment in the form of equity is better , even from the content of the analysis.
I also think that often a time companies run into financial crisis and they need a loan to get out of it, which if succesful, they will bounce back to productivity, and some might want to go into new project or expansion,they can also go for loan. That means it is also important to know what exactlythe investment will be used for.
However, if someone invest inorder to have a substancial opinion in a company, he must have analysed the circumstances and condition of the company and deem it worthy to be invested in.
|
It depends on the type of debt we're talking about and also on the debt level. If the debt is convertible debt -- i.e. is convertible to equity, then that's not too good because once the conversion to equity takes place, EPS will become diluted, the number of shares outstanding increases and this will impact negatively on the share price. Again, if the level of debt to equity is high, then there's the risk of liquidity crisis -- first of all, such a company will have a heavy debt burden and rewards to shareholders will be mediocre. As you can imagine, the share price will also have a mediocre performance.
However, a reasonable amount of debt, especially if it's not convertible to equity -- is good because the debt is tax-free and the additional cash generated from the use of such debt can increase returns to shareholders.