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Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity
By Gordon Donaldson
2000/07 - Beard Books
1587980347 - Paperback - Reprint -  310 pp.
US$34.95

An important book for corporate financial planners and managers to assist in determining debt financing and the establishment of borrowing limits.

Publisher Comments

Category: Banking & Finance

This title is part of the Smart Management list.

Of Interest:

Why Companies Fail: Strategies for Detecting, Avoiding, and Profiting from Bankruptcy

This study focuses on how a company determines the wise and proper limitation to borrowing, i.e., the appraisal of risk associated with debt financing and the establishment of borrowing limits. It shows how successful industrial corporations make the choice between debt and equity as the source of long-term capital. The determination of debt capacity is the appropriate limit to the amount of long-term debt outstanding at any point of time. The author explores how the process of making this decision may be improved. This important and interesting book is invaluable for corporate financial planners, corporate managers, and for all students of finance and business.

No book review available

Gordon Donaldson is the Willard Prescot Smith Professor of Corporate Finance, Emeritus, at the Harvard Business School. He holds a B. Com from the University of Manitoba (Canada), where he taught for ten years before joining the faculty at the Harvard Business School in 1955. He retired in 1993. He is the author of numerous books and academic articles on finance. Photo from the HBS website.

Chapter Page
PART ONE. A FIELD STUDY OF CORPORATE DEBT AND RELATED FINANCIAL POLICIES
1. Introduction 3
2. Background: A Review of Twenty Years of Fund Flows 27
3. Background: Basic Management Attitudes to External Sources of Funds Other than Debt 51
4. Management Attitudes Concerning the Use of Long-Term Debt 68
5. Corporate Debt Policy and the Control of Risk  93
PART TWO. THE ANALYSIS OF CORPORATE DEBT CAPACITY: AN APPRAISAL OF PRACTICE AND A PROPOSAL FOR IMPROVEMENT
6. An Appraisal of Corporate Practice in the Use of Long-Term Debt 123
7. A Cash Flow Analysis for the Appraisal of Risk and the Determination of Long-Term Debt Capacity 156
8. The Application of a Recession Cash Flow Analysis to the Debt-Equity Choice and Its Integration with Other Long-Term Policies 193
9.  A Review of the Debt Policies of Five Companies in the Light of Their Simulated Recession Cash Flows 223
APPENDICES
A. Company-by-Company Record of the Means by Which Funds Were Provided in Years When Total Funds Applied Exceeded Internally Generated Funds Plus Funds Released from Other Assets 268
B. A Probability Approach to the Evaluation of Corporate Debt Capacity 274
Selected Readings Related to the Subject of Corporate Debt Capacity 285
Index 289
EXHIBITS
Number Page
1 Classification of Company Experience in the Investment of Funds in Terms of Long-Term Rate of Growth and Year-to-Year Variability 35
2 Company Data on Internally Generated funds and Related Information 41
3 Company Data on Frequency of Use of External Sources of Funds 46
4 Typical Cash Budget Form 73
5. Probability Table of Recession Sales Contractions 172
6. Estimated Net Cash Flows Associated with the Anticipated Adverse Limits of Recession Experience: Company "A" 195
7. Results of Cash Flow Analysis as Shown in Exhibit 6, Regrouped in Order of Increasing Net Cash Flows: Company "A"  197
8. Cash Solvency at the Limits of Adversity: Company "A" -- Anticipated Recession Cash Balances Associated with the Adverse Recession Cash Flow Assumptions of Exhibit 7 199
9. Cash Adequacy at the Limits of Adversity: Company "A" -- Revision of Exhibit 8 Showing Maximum Adverse Recession Cash Position after Provision for All Expenditures Considered by Management to be Mandatory 205
10. Cash Solvency at the Limits of Adversity: Company "A" (Rubber Industry) -- Anticipated Recession Cash Position Associated with Adverse Limits of Behavior of Determinants of Cash Flow: Considering Only Those Expenditures Required to Generate Current Income 226
11. Cash Adequacy at the Limits of Adversity: Company "A" (Rubber Industry) -- Anticipated Recession Cash Position Associated with Adverse Limits of Behavior or Determinants of Cash Flow: Considering all Expenditures Given Priority over Debt Servicing 227
12. Cash Solvency at the Limits of Adversity: Company "B" (Baking Industry) 236
13. Cash Adequacy  at the Limits of Adversity: Company "B" (Baking Industry) 237
14. Cash Solvency at the Limits of Adversity: Company "C" (Chemical Industry) 244
15. Cash Adequacy  at the Limits of Adversity: Company "C" (Chemical Industry) 245
16 Cash Solvency at the Limits of Adversity: Company "D" (Drug Industry) 250
17 Cash Adequacy  at the Limits of Adversity: Company "D" (Drug Industry) 251
18 Cash Solvency at the Limits of Adversity: Company "E" (Machine Tools Industry) 256
19 Cash Adequacy  at the Limits of Adversity: Company "E" (Machine Tools Industry) 258
B-1 Table Showing All Possible Values for Collection from Sales (Cs) Given Previous Assumptions Regarding S and ACP  278
B-2 Table Indicating Recession Net Cash Flows Associated with All Possible Groupings of Determinants Arranged in Order of Decreasing Adversity 282

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