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下载：20积分What Are the Advantages and Disadvantages to Issuing Bonds in Order to Raise Capital? -- The Motley Fool
Pretty much any activity a company performs -- from hiring workers to producing goods to building new facilities -- costs money.
Companies have a number of options for raising capital. Here are several popular methods:
Retain earnings.
Sell assets.
Issue shares.
Issue bonds.
When a company issues bonds, it's borrowing money from investors in exchange for interest payments and an IOU.
Advantages to issuing bondsLet's look at some of the ways issuing bonds can be superior to those other ways of raising capital.
Retaining earnings: Issuing bonds allows a company to access capital much faster than if it first had to earn and save profits. As the saying goes, you have to spend money to make money.
Selling assets: To sell assets, a company needs to have assets it's willing to sell. Growing companies might decide to borrow money rather than selling assets because they're, well, growing and in the process of acquiring -- not selling -- assets. In down markets, on the other hand, a company may be reluctant to sell assets if it can't find a buyer willing to pay an acceptable price.
Issuing shares: Issuing bonds is much cheaper than issuing shares. When a company sells new shares, the value of its existing shares is diluted. Since shareholders take on more risk than bondholders (in the event of a bankruptcy they're further back in line to receive compensation), shareholders require a higher rate of return than do bond investors.
Issuing bonds offers tax benefits: One other advantage borrowing money has over retaining earnings or issuing shares is that it can reduce the amount of taxes a company owes. That's because the interest a company pays its lenders is counted as an expense, which means pre-tax profits are lower. Retaining earnings and issuing shares, on the other hand, may be more expensive to shareholders, but ironically they're not classified as expenses on an income statement.
Borrowing money may or may not provide tax advantages over selling assets. If the assets were sold for a gain, that gain is taxed, but if they were sold for a loss, the loss would offer its own tax benefits.
An example: From 2009 through 2014, oil prices rose from under $50 per barrel to more than $100. Linn Energy, a company that several years before had owned had owned just a few wells, made loads of acquisitions, investing over $10 billion to grow its assets. Today it drills for oil and gas all over the country.
To finance its incredible growth, Linn couldn't sit back, save, and reinvest its profits. Instead, Linn mostly relied on a combination of stock issues and debt. Linn raised almost $3.8 billion by issuing new shares. It also grew its bond debt load to $6.2 billion from just $250 million.
Disadvantages to issuing bondsOf course, when a company borrows money, it needs to pay interest to its lenders on a regular basis.
Borrowing money can also be riskier than the alternatives. If a company borrows too much money, or if its fortunes change and it is no longer able to pay back its lenders, it might have to raise even more capital on painful terms or go bankrupt.
Let's return to our example above. As Linn grew dramatically with the help of its new borrowings, over those five years, it paid out over $2 billion in interest payments (including interest to its credit facility.) By mid-2014, energy prices began to collapse, and with it the operating income that Linn needed to pay its lenders. Shares fell more than 90% over the next year and a half as investors began fearing the possibility of bankruptcy.
For a company, bonds can offer cheap -- but potentially risky -- access to capital.
Debt vs. ...
Retained Earnings
Asset Sale
Share Issue
Advantages
Faster, tax benefits
May not want to sell assets, possible tax benefits
Cheaper, tax benefits
Disadvantages
Riskier, interest payments
Riskier, Interest Payments, possible tax disadvantage
Riskier, interest payments
Are you more interested in stocks than bonds? Either way, we have you covered. Visit our , and we can help you get started on your personal investing journey.
This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at . Thanks -- and Fool on!
The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services . We Fools may not all hold the same opinions, but we all believe that
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Compare Brokers114网址导航|By JOHN GITTELSOHN, Education WriterFor Susan Kokonas of Sunrise, higher taxes are the only solution to relieve crowded schools.``I don`t think year-round education is an answer and it`s definitely not half-days or more crowding in classrooms,`` said Kokonas, PTA president at Sawgrass Elementary, where her children attend kindergarten and second grade. ``There`s got to be money from somewhere.``For Harold W. Smith of Lighthouse Point, higher taxes are out of the question. Smith, a retiree on a fixed income, said 40 percent of his property taxes already pay for schools and that is enough.``I`m all for year-round education to save money. We`re wasting buildings and schools,`` said Smith, 72. ``I`m not complaining because I don`t have children in schools, but here they come around with a way to save and it`s ridiculous that they back off.``The Broward School Board rejected trying year-round schools earlier this week, bowing to parents who feared their families would be divided and who said the surveys used to select pilot sites for the program were unfair.By acknowledging the parents` wishes, the board positioned itself to confront a larger constituency: the voters.The only real alternative to cramming more children into existing schools is building new ones. And the only way to build new schools is to raise taxes to pay for them through a voter-approved bond issue.Kokonas and Smith were among 178 readers who answered a Sun-Sentinel call-in poll that asked whether voters would approve higher taxes for new schools. The majority -- 58 percent -- said no.The call-in poll was an unscientific opinion sampling, but School Board members and other Broward leaders say it reflects the public mood.``My experience in talking to other school boards around the state and the country in the last four years is that no way in God`s good earth are bond issues passing,`` said board member Toni Siskin, a backer of year-round schools.In 1987, Broward voters narrowly approved $317 million in bonds to finance new school construction. Those interest-bearing bonds, which will be repaid by the year 2008, were sold as tax-deductible investments so the school system could raise cash for construction.This year, observers say, a similar referendum would go down to defeat.``In 1987, you came to the business community for help,`` Fred Millsaps, former chairman of Landmark Banking Corp., told the School Board. ``I can tell you that at the present time, the business community will not support another bond issue.``The need to relieve school crowding is urgent. A five-year construction plan unveiled this week shows Broward needs 49 new schools by the end of the decade to house 10,000 new students each year. But there is enough money to build only 19 schools.The crowding problem affects the entire county. Nine of the 10 elementary schools with the worst capacity problems are east of Florida`s Turnpike and have high minority populations. But the black community`s experience since 1987 has made them wary of school improvement plans.``I think the black community would respond (to a bond) in a very skeptical way,`` said Janice Boursiquot, education adviser to the Broward NAACP. ``Even though we know there is an overflow of students in all of Broward County, (black) people are probably going to see that the new schools are not in the east.``Multitrack year-round schools were viewed as the best solution to overcrowding by many school officials. The multitrack plan divides students into five groups attending classes on staggered schedules, increasing capacity by 25 percent.Supporters of a new bond say higher taxes are a small price to pay to keep together the families that might be divided under the multitrack plan. The owner of an average Broward home assessed at $87,835 is paying $39.71 this year to pay off bonds issued in 1987.But School Board members say bond supporters are too few to pass a tax increase.``I know it`s an option,`` newly elected board member Lois Wexler said of a voter-approved bond. ``But I`m hot off the campaign trail and I know how it works. Retired people get out to the polls. When it comes time to vote, the single-family household parents don`t show up.``Year-round education critics say cities should raise impact fees paid by developers in order to increase school construction funds. Others call for an end to new developments that make schools more crowded. Others want cheaper schools built.School officials say they are weighing all those suggestions. But the most realistic ways to ease crowding, they say, are no more palatable to parents than year-round classes: putting more studen busing children from western neighborhoods to less cro and holding double sessions.School officials say those measures will be needed even if a bond is passed.1 |
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