A Trillion Here, A Trillion There

So what happens to corporate debt when it matures? To maintain its capital structure, most companies refinance the maturing debt with new debt. In the next four years, the total amount of debt needed to refinance existing debt as well as fund growth is expected to be $46 trillion combined in the U.S., Euro zone, U.K., Japan, and China. $30 million is expected to be needed to refinance maturing debt, and $13 to $16 trillion needed for growth. China leads the way with $16 to $18 trillion, while U.S. companies will need only $13 to $16 trillion. http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245333370039

Happy Birthday! Say On Pay Turns 2

For the past two years shareholders have had the ability to vote on executive pay. And although only about 2 percent of executive compensation packages have received a no vote, it appears that there have been changes in those companies that have received a no vote. For example, HP's new CEO, Meg Whitman, has a $1 salary, with much of her pay package based on the company's stock performance. This is the result of the backlash against the former CEO. One factor that does appear to increase the chance of a no vote is poor stock performance over the previous five years. http://www.businessweek.com/articles/2012-06-07/say-on-pay-boards-listen-when-shareholders-speak

Negative Net Working Capital

Negative numbers are generally bad, however a recent survey of the communications sector in 2011 found that the best performing companies actually had negative working capital. While negative working capital can be dangerous, especially if liquidity gets tighter, the advantage is that you are actually using other companies' money for free. http://www3.cfo.com/article/2012/6/cash-flow_cash-flow-operating-working-capital-digitalglobe

Capital Budgeting and Taxes

Tax credits on renewable-energy are set to expire beginning at the end of 2012, which will likely reduce capital investments in these projects. In fact, one analyst notes that wind projects have already slowed down since a project begun now could not be completed by the end of the year and capture the tax break. Obviously, the tax credits are an important cash flow to these renewable-energy projects. The article also states that before the recession, solar facilities earned a 6 to 8 percent aftertax IRR, while the current aftertax IRR is more than 10 percent. A question: Since the article states an aftertax IRR, is this any different than the IRR calculated in the textbook? http://www3.cfo.com/article/2012/6/tax_renewable-energy-wind-solar-investment-tax-credit-production-tax-credit?currpage=1

But It Is Only $3.6 Million Per Year

Last month, LightSquared, Inc., filed bankruptcy. In any bankruptcy, there are numerous court filings, including the costs associated with the bankruptcy. In a recent filing, it was disclosed that the cost per hour for former Solicitor General Theodore Olson to work on the bankruptcy was a staggering $1,800. Fortunately, David Fotouhi, an associate at the same firm, was only charging $445 per hour. http://blogs.wsj.com/law/2012/06/06/bankruptcy-fees-the-ted-olson-edition/

King Cash

A basic tenet of Finance is that cash is king, especially in difficult economic environments. A recent survey sponsored by CFO shows how working capital management has changed in mid-sized companies since the recent recession began. A couple of interesting findings: Companies surveyed feel that their working capital positions have improved over the past three years (page 7), receivables and inventory management are key working capital priorities going forward (page 8), and larger firms are forcing smaller companies to accept longer receivables periods (pages 10 and 11). https://secure.cfo.com/research/index.cfm/displayresearch/14624750?action=download

IPO Flops

Just because a company undergoes an IPO doesn't mean that is is a good investment. Here are 10 recent IPOs that flopped after going public, including a couple of bankruptcies only a few of years after the IPO. http://www.investmentnews.com/gallery/20120524/FREE/524009999/PH