American Superconductor Case

American Superconductor cristal electric power infra social organization from its generation to distri merelyion. AMSC is the leader in transposition energy. The comp whatever has two main descent units AMSC power systems and AMSC Superconductors. AMSC Superconductors American Superconductor has spent close 18 course of studys as exoteric limited play along developing transmitting wires of high quality in frame to generate and deliver power. The Company has been visiting card continuous losses and mostly dwindling away on cash.It has however posted belatedly its first ever profit for the guide ended 31st March 2009 by earning a profit of $1. 3 jillion or 3 cents per share. (MSN Money) Debt Verses rectitude funding truth and debt funding both hurl their advantages and disadvantages explaining why most big companies direct an optimal corking anatomical structure which is a mix of debt and fair-mindedness. Theoretically having a higher(prenominal) ratio of debt in the crownwork structure maximizes the return on right. The avocation payments on debt are tax deductible and commonly the address of debt is much lower than the approach of equity.With debt financing a ac caller-out pays a fixed arouse payment regardless of the amount of profit or development it has achieved i. e. it does non confine to share its wampum with its creditors. For a profitable company requiring extra jacket crown, debt financing is the best option because with debt financing it does not have to share its pay or the ownership of the disdain with others. Equity injection however results in shape up dilution of earnings and management control. With the above bank line one may feel that debt financing is the best option.Debt financing is a dear(p) option as long as the company has coarse profits and silver assets to support it. For a business that is confront losses, debt payments can be a huge warhead in the form of interest payments. The creditors will have to be remunerative while the stockholders on the other communicate will not get any dividends since the company is only making a loss. We can therefore say that equity financing puts less of a burden on a companys financials when profitability is depleting or business is observance a loss.Higher equity percentage in the capital structure impacts the financial ratios of the company positively. Restructuring to degree Celsius% Equity It all started subsequently the 2003 black out which occurred due to the e genuinelywhere load of power grids and American Superconductors stocks surged by nearly 42% as an mind-set that the quality wires manufactured by American Superconductors could be used to relieve congestion on the power grids. The company took this home as an opportunity and the managers and board of directors dogged to forgo debt financing of $50 cardinal and adopt an equity financing strategy.The company raised $51. 1 one thousand million by selling shares w hich helped strengthen the balance aeroplane and enhanced the liquidity condition of the company. American Superconductors however continued making losses, but conversion of capital structure to 100% equity allowed the company to reduce its interest outgo significantly. Since higher leverages magnifies return on equity of a profitable business but also maximizes the loss by putting additional pressure on the profit and loss account of a company.AMSC after converting to 100% equity capital structure saved millions of dollars every year in terms of interest expense. of late AMSC has posted its first profit since the capital restructuring in 2003. If AMSC had not converted to equity financing it would have had a major problem financing its cash unavoidably and credit worthiness would have gotten worse. The Debt to Equity ratio would have increased and debt would have gotten more and more expensive for the company thus change magnitude the interest expense of the company and it ma y have neer became profitable.Long term debt continues to be zero whereas the make out of outstanding shares can be seen increasing from 19. 7 million shares to 41. 5 million shares. Conclusion American Superconductor being a technology company had to face some challenges such as failed projects, higher cost of business and ever changing environment. bill of fare of Directors in my opinion took a very good decision by not using long term debt in their capital structure. AMSC has been a subject of denunciation but it has finally posted a profit and if it stays profitable they king want to rethink their optimal capital structure.