Debt vs Equity Tools Essay

Features of Debts and Fairness Instruments

Team D: Steven Harrison, Jessica Jefferies, Arlene Rivera, Kairstin Roberts,


Mister. Seth Fargen

January 30, 2007

Financial Instruments

Monetary Instruments are the lifeblood of any good company; they are really like estuaries and rivers of living water that brings life and nutrition in order to advance to a strong business. Financial Devices fall into two categories, financial debt and fairness.

Personal debt is a financial instrument that is used to finance an organization by simply paying back took out capital with interest. Debts instruments happen to be notes, loans, bonds, and debentures are accustomed to pay for needs for a great entity ideally in the short term. A plus of good debts is the predictability of obligations to shareholders. Investors can easily assume much less risk of reduction in their investment. Borrowed cash that is used to obtain assets will permit a company to keep its revenue. Another advantage of debt is that loans are generally tax insurance deductible. Some cons of personal debt are that the company will need to have sufficient cashflow to repay financial loans. Loans which can be considered risky may require reason for the money and require collateral to support the loan ought it to result in arrears. The end result will probably be a greater interest rate.

Equity or common share is a even more basic form of an fairness instrument. Prevalent stock is usually ownership involvement in a corporation, which includes interest upon earnings. Interest on earnings translates to dividends as well as affinity for assets allocated upon dissolution. Holders of common share have an excellent opportunity to share the entity's profitability because of unlimited prospect of dividends. Also, common stock holders also bear the greatest risk of loss because they are subordinate to all other creditors and preferred stockholders. The advantages of equity are that there is simply no obligation to pay back the amount put in. Businesses could have more cash readily available because of no debt obligations. Another advantage of equity is the fact business resources do not have to become pledged since collateral to get value investments. The largest disadvantages of equity happen to be that profits go to additional equity shareholders and income taxes are non deductible. Corporation Comparison

Pfizer Pharmaceuticals Inc., (NYSE: PFE) is a healthcare drug manufacturing company that was established in 1849. They are headquartered in New York, NYC with products that include Lipitor, Viagra, and Zoloft. In 2005, their total revenue was $51. 298 billion dollars and had around 106, 1000 employee's world wide. Pfizer can be an organization that utilizes both value and personal debt instruments to finance all their operations. Pfizer heavily depends on operating cashflow, short-term industrial borrowing and long-term personal debt to provide because of its working capital needs, which includes R& D actions. The company's initial and long term investment contain primarily of high-quality, liquid investment grade available for sale financial debt securities. Pfizer's third quarter financial assertion states that as of October 1, 06\ its total debt was $8, 069 million, having its long-term debt being $5, 561 , 000, 000 and short-term borrowings increasing $2, 508 million. Immediate borrowing was dramatically lowered by $9, 000 , 000, 000 from a year ago due it is reductions of short-term opportunities. In the third quarter of 2006, doble value as well as accrued curiosity, $1 billion of senior unsecured floating-rate paperwork were redeemed. In Feb . 2006, Pfizer also given Japanese yen fixed-rate you possess to be employed for general corporate purposes. This kind of entails $508 million of senior unguaranteed notes that are due Feb . 2011, which usually pays fascination semi-annually for a price of 1. 2% and, $466 million of senior unguaranteed notes which have been due Feb . 2016 which usually also pay interest semi-annually with a rate of 1. 8%.

As of March 1, 06\ Pfizer's total shareholder's fairness was $69, 712 mil with prevalent stock including $441 mil, additional paid-in capital of $68, 865...

References: and. d. Securities Law. Funding Instruments. Recovered January 28, 2007 coming from


1989. Woelful, C. Financial Tools: Recent Advancement. Retrieved January

27, 2007 from


Balance Sheets for Pfizer and Coke had been retrieved via www.msnmony.com and