Why would a company issue stock rather than debt to finance its operations?
3 Answer(s)
Binny
1. So they dont have to pay interest. The interest cash could be used for operations.
2. They are not able to raise debt due to limited positive cash flow.
Dec 31 2013 02:30 PM
2. They are not able to raise debt due to limited positive cash flow.
patirajesh07
the company will not have any regulation to pay dividend compulsory to the equity holders.In debt company has to pay interest any time its means in profit of loss also. In the equity case the company will not pay dividend when it get loss. and in the closing stage of the company also equity holders have less prifarence than debt.
Jan 08 2014 10:01 PM
dpdhanashri
Debt financing is usually not cheaper. In fact stock issuance doesn't cost the company any money but just dilutes the shareholders value. In most cases, a company only issues more stock to pay for a takeover which normally doesn't dilute shareholder value.
If a company doesn't have a AAA rating, the interest rate the company pays increases. When a company is in trouble, stock issuance may be the only way to raise money and even that may be unlikely.
Jan 15 2014 04:16 PM
If a company doesn't have a AAA rating, the interest rate the company pays increases. When a company is in trouble, stock issuance may be the only way to raise money and even that may be unlikely.