On the debt financing of enterprises _241 -

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On the debt financing of enterprises

Abstract: The debt management of the business owners, can effectively reduce the cost of capital, to the enterprise leverage. How to balance, reasonable, moderate use of debt to be placed in front of decision makers in business problems. Keywords: debt management; the pros and cons; risk First, the concept of debt management business is the business liabilities based on its own funds through bank loans, commercial credit and issuance of bonds absorption of funds and other forms, and use the funds for production and business activities, so that enterprises continue to receive compensation, value added and updated a modern enterprise financing mode of operation. Second, the pros and cons of debt management enterprises through debt can be more effective access to and control of resources, engaged in production activities to obtain payment of the profit remaining after the cost of borrowing, which is to achieve the rapid accumulation of capital, a shortcut to speed up the development of enterprises. Correct understanding of debt management, debt management is of great significance to the enterprise. 1. Liabilities of the advantage of operating (1) debt management can effectively reduce the weighted average cost of capital. For capital market investors, the yield debt investments fixed, can recover the principal amount due, companies raise funds by way of borrowing money, usually to assume greater risk, but relatively speaking, than pay the cost of capital low. Enterprises to adopt the way of equity capital financing, financial risk, but pay the cost of capital is relatively high. Therefore debt investment risk than a small equity investment, with a corresponding compensation required is also low. Thus, for enterprises, debt financing than equity capital to fund the cost of financing the cost of capital. (2) give the owner of debt management to bring leverage. Since the interest paid to creditors is a the level of corporate profits has nothing to do with the fixed expenses, total return on assets in the enterprise a change,[link widoczny dla zalogowanych], then business owners will bring significant benefits fluctuations, which is the financial Management of the financial leverage effect. Because of this leverage effect exists, return on capital in the enterprise is greater than the interest rate liabilities, the owner of the interest rate of return that return on capital increases in return on capital greater degree of increase, therefore, a certain degree of liability improve business for the fast rate of return of equity capital is significant. (3) debt management to enable businesses to benefit from inflation. In an inflationary environment, the currency devaluation, price increases, while the repayment of corporate debt to book value as the standard still not adjusted for inflation, so that the true business value of the actual repayment of borrowed money must be lower than the true value to give enterprises the benefits of currency depreciation. (4) debt management is conducive to maintaining control of the business enterprises are facing new funding in the decision-making, if the issuing stocks to raise equity capital, is bound to bring dispersed ownership, impact to the existing shareholders of the Company control. The increase in corporate debt financing sources at the same time will not affect the control of the enterprise, is conducive to maintaining control of the business to existing shareholders. 2. Debt management balance the potential risk of revenue management to the business owners on the benefits, but also increased the financial risk. Excessive corporate debt will bring great harm to the root causes of this hazard is the debt management itself includes risk factors. (1) leverage the impact on equity return on capital. Through the above analysis showed that financial leverage can increase the interest in effective return on capital, but the risks and benefits are twin brothers, leverage the potential benefits as the sharp drop in return on capital. When companies face economic recession, or other economic difficulties, due to the fixed amount of the interest burden, interest in the enterprise return on capital falls faster return on capital will decline.

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