Lecture 2a Debts Flashcards
How do you calculate the interest cover
Earnings before interest tax/interest expense (interest paid on debt or debentures)
What are bonds?
Loans to a company to help them to meet business needs (used if a company is in debt)
What are convertible bonds?
A bond that you have an option to convert into a share
What are corporate bonds?
A bond that goes to a company
What are Gilts?
A government bond that anyone can buy to fund various government projects
What are debentures? Why are they good?
Long-term loan that can be traded. It Is a more secure type of bond as the company’s assets (e.g machinery) are put up as “collateral” if company doesn’t pay interest or repay bondholders.
Why is debt cheaper than equity? 3 reasons
-Because equity leads to the dilution of equity shareholding
-Debt attracts tax relief
