Finance and Debt Essay

Debt financing, by contrast, is cash borrowed from a lender at a fixed rate of interest and with a predetermined maturity date. The principal must be paid back in full by the maturity date, but

In order for us to manage a company’s long-term debt obligations, financial leverage ratios are used. The basic question that is asked is; can the company meet its obligations over the long term? In order to answer this question, we look at three ratios, debt ratio, times interest earned, and cash coverage ratio. The debt ratio was figured to

The documentary “Life and Debt” portrays and shows us a true example of what the impact of economic globalization can have on a developing country (Louis Proyect). The irie Island of sun, white sandy beaches and beautiful people is a spot where numerous flock to for relaxation. People all over the world sees and describe Jamaica as a tropical, beach like atmosphere where they go to enjoy their selves, but no one discusses how difficult life is for its citizens. It gives wholeheartedly for stability, however its struggles are indeed deep. Jamaica, over the years after Independence, have seek to stand on its own, without success.

Imagine yourself as a tourist. You have come fed up with your daily ritual of your 9 to 5. You feel as if you are going to go insane if you do not have a break from the routine. Subsequently, you find yourself booking a two-week trip to Jamaica, your dream vacation where you will focus on yourself, and only yourself. The outside world doesn’t matter; all you want to care about is having the best quality vacation you possibly can. This is precisely the problem that Stephanie Black, interweaving text by Jamaica Kincaid, attaches to Jamaica’s current economic climate in her 2001 documentary “Life and Debt”. Once a self-reliant economy, Jamaica has become highly dependent on the global market due to the economic interference of the International Monetary Fund (IMF), the World Bank, and the Inter-American Development Bank, implementing of their globalist views. The film recounts the history of Jamaica’s economy and its present-day status as an economy attempting to

Jamaica is not just white sand beaches and mimosas. Behind the thin veil of paradise lurk corruption, violence, and inequalities. Life & Debt illustrates the daily realties of Jamaica following IMF structural adjustment programs. IMF reforms have perpetuated a cycle of debt that Jamaicans have little hope to escape. Although IMF conditionality claims to develop nations so that they can grow and re-pay their lenders, Jamaica is still indebted $4.5 billion dollars and has little development to show for it. Measures of austerity coupled with devaluation, high interest rates, and drops in local wages results in greater unemployment, increased violence, and widening inequality. The bulk of the film focuses on how global integration has undercut

debt. The steady cash flow generated by the business, short-term bank loans, and the proceeds of the

Unsustainable Debt Many ordinary citizens today in developed countries such as Canada acknowledge the abject poverty affecting citizens of various African countries and other undeveloped nations. However, exactly why these countries are in this position appears to be a mystery, despite many cash grants, relief efforts, and aid are delivered to these countries by various Western organizations amidst great media attention. In addition, it also seems natural that such undeveloped countries should have a net flow of capital moving towards them from wealthy industrialized nations such as Canada. On the contrary, a net flow of money has actually been directed towards the industrialized nations and various financial institutions from

spending by means of cutbacks may be a path, possibly a difficult one, to the

Stockholders will be happy that the managers of the firm are not wasting any money and working hard to pay for the interest expense for the debt holders; as a default brings the company to the brink of bankruptcy. In addition issuing debts will minimize or prevent any unwanted incentives giving room for the better growth of the company.

There are a number of reasons that a company would forgo debt financing in favor of equity. The first is that debt financing increases the risk of the company. The cash flows that the company earns are allocated to debt re-service first, which reduces the amount of funding available to help the company expand. Additionally, there may come covenants attached to the debt that further restrict the ability of management to perform its duties in the manner it would prefer. Thus, the debt's restrictions may cause management to undertake activities that are not in the best interest of the shareholders, simply because those activities are in the best interests of the creditors.

Debt ratio indicates how much debt is used to finance a firm’s assets. To see the profitability a firm has to compare the difference between debt-to-equity mixes. The company should evaluate how do they finance their assets, do they use debt? There two types of debt, short-term and long-term debt, realizing the remaining percentage must be financed by equity. The amount of debt a firm uses depends on its proven income record and the availability of assets that can be used as collateral for the loan — and how much risk management is willing to assume. When a company borrows money to finance business there is a certain requirement that the company pay

creditors a have a greater stake in the company than investors (“Financial Ratio Analysis,” n.d.).

If you do not pay out a dividend will reflect badly on the company and may stop future investors investing.

In Trade of Theory the company will decide that how much debt finance and how much equity finance will be used so that the cost and benefits are balanced out. In fact this theory explains how the corporations finance i.e. partly with debt and party with equity. It emphasis on the marginal benefit of debt finance by stating that tax benefits of debt will offset with the cost of debt.

b) Why do virtually all companies choose to finance themselves by the mixture of debt and equity?