Business Finance Homework Help

Discussion Topic 1: To invest or not to invest, what do you do?

After analyzing the financial statements and thoroughly researching a
company, you have realized that the firm has had zero interest-bearing
debt (no notes, bonds, or loans) over the past eight years.

Based on these findings, would you be interested in becoming a stockholder for this company? Why or why not?

Please do the discussion then response each posted # 1 to 3 down below

Posted 1

Based on those findings, I would not be interested in becoming a

stockholder for the company. It takes a large amount of money to start

and expand a successful business. I’d be concerned about where the

company is receiving their cash and how it is being accounted for.

Another issue is credit. If the company accumulated debt, they would

need a loan. Financial assistance would be difficult to get if the

business had no credit history.

Posted 2

There
are a lot more factors I would look at as an investor other than debt
when considering investing in a company. I would take into
consideration the nature of the industry, full financial history, and
their potential to survive long into the future.

The
absence of debt can be a sign that the company is generating enough
revenue to pay off debt and still comfortably operate. The conservative
nature of this company would be attractive to some investors. However, a
company that pinches the penny too hard will be hard pressed to dish
out funds for R&D to stay with on stop of technology to sustain a
long existence.

To
some investors the presence of debt can be a sign that the company may
also have a bit of a tax shield by deducting the interest expense. To
other investors High debt usually equals higher interest rates and that
can cut into investors dividend payouts over time.

I
would also believe, just as with individuals, a company has a recorded
credit history, and it would be important to keep debts paid on time.

After I take everything into consideration I would probably invest in a company that is debt free.

Posted 3

I would be very hesitant to invest in an organization with absolutely no interest-bearing debt.

For one, working capital, sometimes in the form of loans or notes or
other interest-bearing debt, is always required for the growth of an
organization. “It takes money to make money,” as we were all told at
some point in our lives. So, a company that is either hesitant to or
against taking out debt may be in danger of not progressively moving the
business forward like it should be to make it worth my investment
dollars.

Second, should the organization ever need to take out
interest-bearing debt just to survive (never mind grow), they may not
have the credit record necessary to do so; which could subsequently very
well put them out of business entirely.

However, I would not invest in an organization with too much
interest-bearing debt. Interest rates rising is not a situation that
anyone can control and to be stuck with too much debt and high interest
rates will also quickly put an organization out of business.

Moderation and proper budgeting for growth are key when it comes to an organization taking on interest-bearing debt.