Alternative Art Of Moderate Debt Raising

In addition to the advantages of Taxation, enterprises can also reduce their agent costs. Because in the environment of corporate debt management, management will always face the pressure of repayment, which may virtually reduce the abuse of residual cash by management, thereby inhibiting blind investment behavior.

From the above analysis, we can see that Borrow money It seems that there is no harm in doing so. It can effectively enlarge the rate of return on equity, and at the same time has the advantages of tax shield and alleviating agency problems. So the more debt ratio is, the better.

First of all, the higher the debt ratio, the higher the interest rate required by banks. This requires higher return on assets to pay bank interest rates. enterprise operation Of risk 。

Secondly, excessive bank liabilities will increase the pressure of fund management in operation and reduce financial flexibility. When this pressure reaches a certain level, it will easily lead to the debt crisis and credit crisis of the company, resulting in the closure of the capital chain. The impact of such crisis on the normal operation of the company may not be properly assessed and sometimes even destroyed.

Therefore, the moderate borrowing of enterprises should consider the industry characteristics, development cycle, asset composition and profit level of enterprises. At the same time, it is necessary to consider all kinds of costs that may arise from the company debt crisis, so as to maintain an optimal capital structure. What is the best? In theory, it is difficult to produce an accurate value. It requires the entrepreneur's experience and intuition to judge. Therefore, in this sense, we call debt management an art.

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Borrowing from banks is the most common way to borrow money in normal business process. However, how much money can be borrowed and how much interest can be borrowed will depend on the company's ability. Just imagine, how can you lend money to a person who has no family and can't afford to eat? He can't be dragged into the bottomless pit. Similarly, if the proportion of borrowings in the company's net assets is relatively small, the risk of borrowing from banks is relatively small. Enterprises can usually obtain such loans at relatively low cost. If a company borrows far more than the company's net assets, the risk of borrowing will increase. Accordingly, banks will also ask for higher interest rates to compensate for the risk of borrowing. But in any case, companies usually borrow money from banks.

However, it is worth exploring that the interest of bank loans can usually be included in the pre tax cost of corporate finance, so interest will have the function of "tax shield". For example, if the enterprise's income tax rate is 50%, and the bank loan interest rate is 10%, then, from the after tax profit, the bank loan interest rate of the enterprise is only 5%. Because 5% of the cost of borrowing was offset by income tax. In this sense, the government encourages enterprises to borrow money.

Whether enterprises are suitable for borrowing is not only to see the interests of debt raising in tax shields, but also to make reasonable financial planning according to the needs of enterprise development, and to determine appropriate debt ratio according to the actual demand of funds.

Bank borrowing will reduce the contribution of debt management to raise net assets return rate due to interest. However, if the pre tax return of capital invested by enterprises is higher than that of bank borrowings, borrowing will surely have a positive effect on net asset return after tax. Conversely, if the return of investment capital is lower than the current financial market interest rate, the impact of debt on return on net assets is negative. For example, A and B have the same investment capital of 100 million yuan, but the financing structure is different. One of them is fully equity financing, half of which is equity financing and the other half gets debt financing at 10% interest rate. Under different profit levels, the impact of liabilities on return on net assets is quite different.