When the company is facing certain financial issues, restructuring is a mechanism that is opted to modify certain operational aspects of the company. Restructuring is very important when the company is going under debt or profits have been declining significantly. This may also be done to prepare for a buyout, a merger or sale of the company. The restructuring may be done in various ways. Some of them are:
Debt Restructuring
Equity Restructuring
Debt restructuring is an important financial tool where the company makes an effort to reduce debts and improve liquidity so the business operations can run smoothly. This can be done by the company by substituting high-cost debt with low-cost borrowings.
Equity restructuring is referred to as a transaction between the company and its shareholders where the fair value (the market price that the parties are willing to pay for an asset) is altered. It is also referred to as a transaction where the shares of the company relinquishing through price determination of each share by conducting activities like reorganization, split or repurchasing of shares. The price may change as the demand changes. This is done to prevent the company from going into dilution.
Comments