When expanding operations require new capital, a loan is considered a hard asset in business. Sure, it is a load on the earnings and therefore the P/E, but at least the capital assets are growing. Assets, as you may know, are looked upon favorably by AMEX, NYSE and NASDAQ. They help make up part of the book value of a company. Issuing stock for money, doesn't add assets, rather only dilutes current stockholder value. Spending that money on capital equipment, of course adds assets in either case. Perhaps the main difference is that a loan does not immediately dilute current shareholder value the way that increasing the number of shares does.
I hope I haven't confused you by my answer. I know what I want to say, but don't always come across clearly. It is, of course, possible that I have totally screwed up this explanation. ;-) Anybody else like to state this more clearly, or is what I said sufficient?
Stay in the Black! jimS |
