To conceptualize the value-creating potential of debt, we need to take a closer look at the...
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To conceptualize the value-creating potential of debt, we need to take a closer look at the capital structure of various companies. First, let's compare the capital structures of a buyout target company and a growth equity target company, using some basic market value/enterprise value balance sheets. Buyout Growth Equity ASSETS ASSETS Capital Structure (Liabilities) DEBT $75M EQUITY $25M DEBT $25M EQUITY $75M As Q s you can see from these simplified balance sheets, the leverage taken on by growth equity firms is considerably smaller than in buyouts. Why do you think that is? To conceptualize the value-creating potential of debt, we need to take a closer look at the capital structure of various companies. First, let's compare the capital structures of a buyout target company and a growth equity target company, using some basic market value/enterprise value balance sheets. Buyout Growth Equity ASSETS ASSETS Capital Structure (Liabilities) DEBT $75M EQUITY $25M DEBT $25M EQUITY $75M As Q s you can see from these simplified balance sheets, the leverage taken on by growth equity firms is considerably smaller than in buyouts. Why do you think that is?
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ANSWER In case of buyouts a majority stake in mature profitable f... View the full answer
Related Book For
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
Posted Date:
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