How should companies raise money?

[cmattporter]

Two particular ways of raising money that I want to discuss. Issuing new stock and/or issuing bonds. I want to find all pros and cons of each. What would you chose and in what circumstances/variables?

[ragnarisapirate]

Two particular ways of raising money that I want to discuss. Issuing new stock and/or issuing bonds. I want to find all pros and cons of each. What would you chose and in what circumstances/variables?

I would say that it really depends on various transaction costs/placement fees, and the sorts of things that are attached to various offerings...

 

Furthermore, you have to look at the term of a bond and the share price of the underlying common stock. If the stock is valued at a higher amount than what the company is using the proceeds for, then, issuance of stock would be a gain for shareholders. If they issue stock, at, say, 5x sustainable earnings and buy something for 10x sustainable earnings (in a vacuum) that would be a bad allocation.

 

Companies, when raising capital, should try to look at things as we value investors do.