Corporate Debt

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Private corporate debt in the US stands at $9 trillion. Economist and co-founder of “Democracy at Work” Prof. Richard Wolff joins Rick Sanchez to discuss the dangers of such an astronomical sum to the US in the event of a deep recession.

 

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Disclaimer: For Education Only

 

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What is Capitalization

In Accounting, capitalization occurs when the costs to acquire an asset are expensed over the life of that asset rather than in the period it was incurred. In finance, capitalization is the sum of a corporation’s stock, long-term debt, and retained earnings.

Capitalization also refers to the number of outstanding shares multiplied by share price.

 

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What is Capital Structure

The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.

 

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Debt vs. Equity

Debt is one of the two main ways companies can raise capital in the capital markets. Companies like to issue debt because of the tax advantages. Interest payments are tax deductible. Debt also allows a company or business to retain ownership, unlike equity.  In times of low interest rates, debt is abundant and easy to access.

Equity is more expensive than debt, especially when interest rates are low, but equity does not need to be paid back if earnings decline.

Interest payments on debt are generally tax-deductible, but debt increases the risk profile of a company.

 

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