NCPA - National Center for Policy Analysis

Ease Of Raising Capital

March 10, 1997

The average cost of equity and debt is at or near a forty-year low, according to an analysis from the National Bureau of Economic Research. That means that corporations seeking to raise funds for expansion or new businesses starting up are having an easy time of it these days.

  • The profit that a company is expected to produce on each dollar invested in its stock is the earnings/price ratio -- and it has plummeted from 8 percent in the late 1980s to under 5 percent today.
  • Securities Data Company has calculated that the amount of new debt issued in 1996 set a record of $300 billion, while the amount of new stock issued hit a record $115 billion.
  • Analysts say the past 18 months have been the best time ever for young technology companies to raise equity capital.
  • With current corporate profits so strong, most companies seeking to expand can finance their investments through retained earnings -- rather than having to borrow.

This, off course, leaves more funds in the capital pool available to fledgling entrepreneurs.

 

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