Debt Structure :- Debt structure in a balance sheet is a highly important factor because it does reflect how the management is managing their accounts?. Now there can be various way a company can manage their debt. Generally the company used to divide their debt into two parts Long term debt and Short term debt.
1. Short term debt :- the short term debt can be managed in various way.
i. As simple debt in the balance sheet which is repayable from the free cash flow.
ii. As a short of working capital[i.e. a natural hedging from operation i.e. surplus of a trade operations as working capital borrowing in foreign currency] in the P&L accounts against which an extra hedge is also possible like net from the trade operation i.e. export minus import. This eventually help the company to lower the tax rate as profit will be shown lower than actual.
2. Long term debt :- the long term debt can be managed in various way as well.
i. As a simple debt and it's interest payable within one year.
ii. As long term convertible bond to hedge it's foreign debt i.e. if the share price will not reach certain amount within that period then the company has to pay the bond money otherwise it will be waived off.
iii. As forex debt[Hedge fund] i.e. depending on the currency factor volatility. This will have a negative effect if the rupee fall against dollar but it has a better effect of interest rate cover which is only 3.7% [i.e. the interest cost on foreign currency]compare to borrowing from indian market which charge 9-10% as interest rate.Even if currency fluctuate within a range then it will take up to 6-7%.
iv. By capitalizing it which will increase the profit in the P&L account but a loosing factor for Investor.
v. By making it as a forex loss quarterly for the quarter which though reduce the profit but inturn beneficial for the investor.
To Be Contd..
1. Short term debt :- the short term debt can be managed in various way.
i. As simple debt in the balance sheet which is repayable from the free cash flow.
ii. As a short of working capital[i.e. a natural hedging from operation i.e. surplus of a trade operations as working capital borrowing in foreign currency] in the P&L accounts against which an extra hedge is also possible like net from the trade operation i.e. export minus import. This eventually help the company to lower the tax rate as profit will be shown lower than actual.
2. Long term debt :- the long term debt can be managed in various way as well.
i. As a simple debt and it's interest payable within one year.
ii. As long term convertible bond to hedge it's foreign debt i.e. if the share price will not reach certain amount within that period then the company has to pay the bond money otherwise it will be waived off.
iii. As forex debt[Hedge fund] i.e. depending on the currency factor volatility. This will have a negative effect if the rupee fall against dollar but it has a better effect of interest rate cover which is only 3.7% [i.e. the interest cost on foreign currency]compare to borrowing from indian market which charge 9-10% as interest rate.Even if currency fluctuate within a range then it will take up to 6-7%.
iv. By capitalizing it which will increase the profit in the P&L account but a loosing factor for Investor.
v. By making it as a forex loss quarterly for the quarter which though reduce the profit but inturn beneficial for the investor.
To Be Contd..
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