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would some company seek to increase their gearing?

+2 Votes
would some company seek to increase their gearing?

would some company seek to increase their gearing?
P4 BPP textbook:, page18. the benefit of a share repurchase scheme. why would some compnay want to increase gearing anyhow?

May 1st 2014 AN ACCA USER 420 Points

2 Replies

+4 Votes

Since debt finance is usually much cheaper than equity finance, I think the company can tolerate to increase its gearing up to a certain level. On top of that shareholders have the benefit of not having their share prices diluted.

The bad side is that it may have difficulty raising more debt finance since their gearing would be high.

May 1st 2014 AN ACCA USER 520 Points
+2 Votes
Since debt finance is usually much cheaper than equity finance, so I think the company can tolerate to increase its gearing up to a certain level. On top of that shareholders have the benefit of not having their share prices diluted.

The bad side is that it may have difficulty raising more debt finance since their gearing would be high.
May 1st 2014 AN ACCA USER 520 Points
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