Last Updated 07 May 2020

Debt-Equity Mix

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The intention of a company to expand clearly requires much capital and logistics resources. The process needs to undergo a definite evaluation measure to maximize the financial capability of the corporation. A debt-equity mix is a process of maintaining a money resource without compromising the ability of the investor to proceed with the investment plan. Apparently, when investments are made, it usually requires to input money equities as well as to acquire a debt principle from the assigned banks of the company (Dynamic Equity, 2000).

In a larger perspective, it would be ideal if the debt-equity combination can be balanced off. In order to achieve this balance at a maximized rate, it should consider the financial capability of the company. The main principle is to take as much debt as possible if the tax cost of such debt is lower compared to the net profit of the available assets, also known as leverage. On the other hand, if the margin of profit is somehow higher than the current interest rates for the assets, minimizing equity and maximizing debt would be ideal if the returns on equity is to be optimized.

If these conditions are not met, then the exact opposite of the process should be executed. On a general note, if there are no sufficient funds to pay for debts, then the most appropriate step is to minimize it and use equity to finance it. On the aspect of a dividend policy, the process should always bear the actual asset of the company in which it can rely on for expansion. The payout ratio should always be at a minimal rate if debt is to be incurred at a high value rate.

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(Pietersz, 2006). Since a company expansion requires substantial amount of financing, dividends to be distributed can only be disseminated based on the lowest possible value projection from the profit margin of the current available assets. References Dynamic Equity. 2000. Debt vs. Equity. Retrieved November 10 2007 from http://www. dynamic-equity. com/vcmag03. htm. Pietersz, G. 2006. Dividend Policy. Moneyterms. Retrieved November 10 2007 from http://moneyterms. co. uk/dividend-policy/.

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