As a CEO, a debt ratio for a multimillion company would be based on strategic financial analysis.
Tina Memsic
As a CEO, a debt ratio for a multimillion company would be based on strategic financial analysis. The ratio should be considered from a perspective of pure risk and should not exceed 0.4 (Lee & Lee, 2016, p. 75). The CEO should expand the firm’s debt when a project needs financing; the project should be huge with an analyzed positive rate of return on investment. It also applies to the idea of the inadequacy of finances from the company to completely finance the project.
The company should invest in issuing bonds. There are retained earnings that give vast access to funds by the company. However, running credits and liquidity risks will need much input in the risk analysis methodologies before decision making. When it comes to common stock and preferred stock, the firm will choose any of the two because they both represent equity ownership. Nevertheless, preferred stocks tend to pay higher dividend rates compared to common stocks.
Buying back bonds will seem to be an uninformed idea because of their changing tax rate and call-ability, which largely affect the revenue realization of the firm or the investment scheme (Bragg, 2013, p. 105). Callbacks on bonds would only be appropriate in situations where their exact yields have been determined. Repurchasing of common stock will take a lot of time to reach the desired amount of stock needed. Again, the free float percentage will be reduced, thereby negatively impacting the shared liquidity. The company will, at last, be obligated to pay its shareholders dividends at the end of the financial year because it is an investment they made into the company operations, and they expect a return on their investment.
References
Bragg, S. M. (2013). Financial analysis: A business decision guide.
Lee, J. C., & Lee, C. F. (2016). Financial analysis, planning & Forecasting: Theory and application third. World Scientific Publishing Company.
