Company Debt

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Re: Company Debt

Postby Marche on Fri Nov 20, 2009 10:25 am

Also, your dividend per share remains the same when issuing stock. But with more shares, this means the total dividend paid goes up significantly! So keep in mind the dangers of having to lower dividend and negative stock price reactions or getting a much higher dividend to pay out.
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Re: Company Debt

Postby Morpheus on Fri Nov 20, 2009 3:09 pm

Morpheus wrote:...
personally i prefer issuing stock to loaning, since it just causes your dividend costs to rise by the same percentage of your stock you're issuing. (usually cheaper per month than loaning)

thats what i meant marche...
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Re: Company Debt

Postby TomTomCo on Mon Nov 23, 2009 10:38 pm

Ah, but currently in this game, what advantage is there to owning your own company or another? I have gone an entire cycle owning 70% of my company, and I've gone a cycle owning none of my company. Other than using dividends to shuffle cash from the company to my personal account (which is now much more difficult), I don't see any advantage to owning your own company. I now treat my company like any other in the stock market and issue stock the moment it becomes possible to do so.
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Re: Company Debt

Postby Kit on Mon Nov 23, 2009 11:24 pm

I suppose it depends on if you think that you can generate more returns for your share holders than another company can. You also have significantly better information about what is going on in your company, so you should be able to make better investment decisions about buying and owning its stock than another player's company.

That's the theory anyway, not sure how much difference it makes in practice.

Oh yea, There is also the advantage that as the owner/operator of a company you cannot have your shares purchased away from you via a forced sale.

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Re: Company Debt

Postby Raymond on Mon Nov 23, 2009 11:44 pm

Well, it depends on how well you play the game.

If you are still working out how to balance everything, then spreading your investment around makes more sense.

But, when you know what to do, then investing in your own company makes more sense.
Why? You know that the company is going to do reasonably well. If it doesn't, its your own fault.

If you have the money to buy more stocks, then issuing new stock to raise money is a fine idea.
If you dont, then borrowing the money works better, because your personal investment isnt dilluted by all those new shares.

If you don't know what you are doing, or make a major misstep, then it will get you in trouble that much faster, however.

Some things offer a high enough return to make borrowing a profitable approach. Some dont.

Borrowing also has the advantage that it isnt limited to once every four years, like a new stock issue is.

There are definite benifits to borrowing money, you just have to weigh it against the higher risks it entails. A stock offering is the low risk alternative to raise cash quickly.

There are also a number of things that you, as the CEO, know about that the rest of us dont. Retooling for a new product, or upgrading a line, for example. That leads to a number of months of reduced profit, which makes your stock look like a not so good investment. But you, as the CEO, know that there is about to be a jump in profitability, which will drive the stock price up some.

Also, you decide how much the divedend will be. That can have a big effect on share price.
Last, and not least, your shares arent going to get lost to a forced sale. That is a biggie, long term.

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Re: Company Debt

Postby Gooner on Fri Jan 28, 2011 5:49 am

Is there anything to gain (lower interest rate?) by borrowing for a shorter period of time? I just took a loan for 4 years, and it seems to be a mistake.
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Re: Company Debt

Postby Kit on Fri Jan 28, 2011 5:03 pm

Currently there is nothing to gain by taking out a loan for a shorter term. I intend to make there be a higher interest rate for longer term loans, but that has not been implemented yet.

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