SU Advance Managerial & Cost Accounting to Invest or Not to Invest Discussion

I’m working on a accounting discussion question and need an explanation to help me study.

Discussion Topic 1: To invest or not to invest, what do you do?

After analyzing the financial statements and thoroughly researching acompany, you have realized that the firm has had zero interest-bearingdebt (no notes, bonds, or loans) over the past eight years.

Based on these findings, would you be interested in becoming a stockholder for this company? Why or why not?

Please do the discussion then response each posted # 1 to 3 down below

Posted 1

Based on those findings, I would not be interested in becoming a

stockholder for the company. It takes a large amount of money to start

and expand a successful business. I’d be concerned about where the

company is receiving their cash and how it is being accounted for.

Another issue is credit. If the company accumulated debt, they would

need a loan. Financial assistance would be difficult to get if the

business had no credit history.

Posted 2

Thereare a lot more factors I would look at as an investor other than debtwhen considering investing in a company. I would take intoconsideration the nature of the industry, full financial history, andtheir potential to survive long into the future.

Theabsence of debt can be a sign that the company is generating enoughrevenue to pay off debt and still comfortably operate. The conservativenature of this company would be attractive to some investors. However, acompany that pinches the penny too hard will be hard pressed to dishout funds for R&D to stay with on stop of technology to sustain along existence.

Tosome investors the presence of debt can be a sign that the company mayalso have a bit of a tax shield by deducting the interest expense. Toother investors High debt usually equals higher interest rates and thatcan cut into investors dividend payouts over time.

Iwould also believe, just as with individuals, a company has a recordedcredit history, and it would be important to keep debts paid on time.

After I take everything into consideration I would probably invest in a company that is debt free.

Posted 3

I would be very hesitant to invest in an organization with absolutely no interest-bearing debt.

For one, working capital, sometimes in the form of loans or notes orother interest-bearing debt, is always required for the growth of anorganization. “It takes money to make money,” as we were all told atsome point in our lives. So, a company that is either hesitant to oragainst taking out debt may be in danger of not progressively moving thebusiness forward like it should be to make it worth my investmentdollars.

Second, should the organization ever need to take outinterest-bearing debt just to survive (never mind grow), they may nothave the credit record necessary to do so; which could subsequently verywell put them out of business entirely.

However, I would not invest in an organization with too muchinterest-bearing debt. Interest rates rising is not a situation thatanyone can control and to be stuck with too much debt and high interestrates will also quickly put an organization out of business.

Moderation and proper budgeting for growth are key when it comes to an organization taking on interest-bearing debt.