The Advantages and Disadvantages for AMSC, Essay Example

American Super Conductor provides a variety of proprietary technologies and other solutions in electric power. For several years AMSC has been conducting its business through debt financing but it’s planning to change to equity financing. Some of the reasons why AMSC is planning to change from debt financing to equity financing are due to the increased competition in utility. According to the board of directors one factor that will make the company move from debt financing to equity financing is to be able to provide to its clients quality products that can be able to overcome the electric infrastructure problems.

However not ever one is viewing the move to be positive and many are afraid of the negatives it may have especially to the stakeholders. To be able to understand how forgoing the debt financing and adapting the equity financing can affect the AMSC shareholders one has to bear in mind that the decision to using debt or equity as method of raising money is not something that should be taken lightly hence the advantages and disadvantages of any step taken should be compared.

Advantages

The first advantage that AMSC shareholders will be able to experience is that after adapting the equity financing, AMSC will be able to achieve its over $40 million revenue in a year and also continue experiencing revenue momentum growth this is because after getting equity finances, the company can use that company in developing electric products that can help solve most of the problems most businesses are facing. Increased product quality will increase the company’s popularity and hence this will be to the advantage of the shareholders since the company’s stock exchange will continue growing hence the stakeholders will experience positive growth (Richharia, 2007).

Forgoing the debt financing and starting equity financing will enable the AMSC company solve some of the problems that have been challenging the company for several years. Through the equity financing system, AMSC will be able to obtain quality electrical infrastructure and transmission and distribution networks which will enable the company maintain some of its important clients such as U.S. navy contract who have been depending on AMSC high temperature superconductor motor and generator due to their high quality. Getting these contractors will enable the company’s positive growth be felt by the stakeholders.

Forgoing the debt financing and adapting the equity financing will enable the company generate more cash for corporate purposes which will enable the company improve its manufacturing quality and hence be able to generate second-generation high temperature superconductor wire that will be able to solve the modern day problems, compete well in the current market and hence increase its saving costs. Introduction of equity financing to AMSC will enable it have the finance for carrying out other projects such as for increasing the electrical generation capacity using wind energy converters and hence continue increasing the company’s revenue.

Disadvantages

Introduction of equity financing will enable the company have the chance to introduce sophisticated technologies in various sectors such as wind turbines will in the long run turn out to be expensive. This is due to the many capacitors that are required to compensate for the Volt-Amperes reactive fluctuations from the grids. The integration of AMSC capacitor banks is rather expensive and hence most stakeholders will not be able to benefit from these modern projects whose cost of production is fairly high.

In case after shifting from debt financing to equity financing without having positive revenue collection as the management has suggested, especially under the current economic conditions, the share holders will be negatively affected and will losses millions of dollars.

Since the company stock has experienced positive growth in the past few years, adopting the equity financing method will turn the company back into a crippled company since in equity financing it’s the investors who partly own the business. This will negatively affect the stakeholders’ interests since the investors will be entitled to giving and controlling the entire decision making in the company and hence will dilute the ownership interests (Long, 2008).

The procedure of obtaining equity financing is costly and time demanding. Instead of the management wasting this time running after interest investors, it should use that time to invest the money they have been gaining from their quality products back into the business systems and projects. Forgoing debt financing and adapting equity financing will be a show that AMSC Company has failed in its business ventures and hence can affect the companies stakeholders negatively since potential clients and contractors will be afraid of investing on its products. This is unlike the signals that the company has been showing due to the growth of revenue rates and interest rates in the past years.

Conclusion

AMSC adoption of equity financing has more positive benefits than advantages and hence should be considered as the best option for the company’s future growth. Adopting the equity financing mode will enable the company get more cash that it can sue to invest in various projects and hence be able to compete well in the current market.

Work Cited 

Long, Mark. World Satellite Annual. Madison: Mark long press, 2008. 440 pages

Richharia, Madhavendra. Mobile satellite communications: principles and trends. :Addison Wesley publishers. 2007. 500 pages