Question

Vijay felt that to support his company (FFY’s growth), he may need to raise capital soon. His options are to borrow funds as a loan from BDC (Business Development Corporation), or issue shares and raise equity capital. Explain to him about ratio analysis specifically, he would like to know the ratios which the lender (BDC) would be interested in and the ratios a potential shareholder would look at before considering investing in FFY? Answer in about 250 words.

Answer 1

Options of borrowing funds using Business Development corporation or issuing shares to raise capital would be different in nature so is will have to be individually analysed .

I. Business Development corporation-

A.Business Development corporation will be a type of closed ended fund that will be making an investment into the company

B.these funds will be generally owned by those companies who are publicly traded in nature and they can also provide up with the support services

C.this company will be using a highest rate of leverage for supporting the overall company structure

D. These Business Development corporation are open to the retail investors and highly liquid in nature.

Equity shares using issuance of share-

A.these are generally available to the public company and they issue shares in the primary market in order to get them subscribed the public and raise money

B. This will be involving with flotation cost and appointment of a underwriter

C. These processes can be costly at times and only preferable to large companies

D. This will also means dilution of the overall control on the company.

so Vijay will always be trying to using an appropriate ratio of both Business Development corporation and assurance of the equity capital in order to maximize his growth and rate of return in the near future.