Recapitalization
 |
Definition of 'Recapitalization'Restructuring a company's debt and equity mixture, most often with the aim of making a company's capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company's capital structure and replacing them with bonds. |
 |
Investopedia explains 'Recapitalization'Recapitalization can be undertaken for a number of reasons, such as defending against a hostile takeover, minimizing taxes or to implement an exit strategy for venture capitalists. Companies often want to diversify their debt-to-equity ratio to improve liquidity. A good example is when a company issues stock in order to buy back debt securities, thus increasing its proportion of equity capital as compared to its debt capital.Generally speaking, when a company's debt decreases in proportion to its equity, it has lower leverage and thus, ceteris paribus, its earnings per share should decrease following the change, however its shares would be incrementally less risky, since the company's shareholders have fewer debt obligations which must be paid by the company before shareholders can see profits. |
Related Definitions
Articles Of Interest
-
Using Enterprise Value To Compare Companies
Learn how enterprise value can help investors compare companies with different capital structures. -
Finding The Best Buyer For Your Small Business
Learn more about the process business owners go through to seal a merger or acquisition deal. -
Owners Can Be Deal Killers In M&A
A merger and acquisition advisor is often the best choice when selling a company. -
Floating-Rate Mutual Funds: Rewards And Risks
In an economy with low interest rates, investors need to get creative in order to reap high returns. -
Why Successful Business Owners Sell Out
Learn the motives that drive companies into the arms of an acquirer. -
Ratio Analysis Tutorial
If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios. -
7 Unconventional Ways Businesses Can Borrow Money
Find out how your business can get the money it needs - even when the bank says "no". -
Guide To Embedded Options In Bonds
Investors should be aware of embedded options that may be available in certain securities as these options may affect the value of the security. -
Visual Guide To Investing In Preferred Stock ETFs
Preferred stock ETFs have become a big hit with some investors. Find out why! -
Small Business Financing: Debt Or Equity?
There are two sources of financing for small businesses: debt and equity financing. This article explains both.
Free Annual Reports
