Paper Title :Debt Capacity and Company Performance

Author :Andreas Rams

Article Citation :Andreas Rams , (2018 ) " Debt Capacity and Company Performance " , International Journal of Management and Applied Science (IJMAS) , pp. 68-73, Volume-4,Issue-10

Abstract : The field of research focussing on debt capacity can be understood as a special part of the much broader capital structure theory. Starting with the paper of Modigliani / Miller in 1958 there has been an ongoing and intensive theoretical discussion about the – potentially – optimal capital structure of a company. One relatively new part of the related debate analyses – among others – debt capacity figures, debt covenants and key financial – or more precisely – rating figures and their potential relation to the capital structure of a company. Mainly these newer approaches intend to show possible effects of key financial figures on the capital structure. The aim of this paper is to contribute to the ongoing capital structure theory. Taking into account the real day-to-day decisions of the finance manager of a company it intends to employ a different view compared to until today dominating research approaches. Consequently, this paper assumes that debt capacity – rules – can be a way or means to define and manage the capital structure of a company. Further, this paper intends to analyse empirically, if there may be a steady relation between the – still open–debt capacity of companies and their performance. With regard to this question, a positive correlation is shown to be evident. Hence, it could be worthwhile to go on analysing the capital structure issue employing this paper’s relatively new view on it. Keywords - debt capacity, capital structure, financial flexibility, strategic finance, key rating figures

Type : Research paper

Published : Volume-4,Issue-10

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