The Search for an Optimal Capital Structure

From Seed World Magazine - You’re looking over your income statement and come to the interest expense entry … you immediately know that money goes straight to the bank, never having an opportunity to hit the bottom line. You wonder if it is wise to carry debt on the balance sheet at all. If the firm has the necessary free cash, shouldn’t the agribusiness always use it to finance new projects instead of debt capital? Actually, the short answer is no! Debt carries benefits with it that would otherwise be unattainable if the firm was entirely equity financed. Carrying debt can act as a tax shield, provide financing flexibility to grow, and improve Economic Value Added (EVA). Let’s consider each of these benefits and how debt can improve financial performance of your seed business.