4 million during its most recent quarter before the decision to take on equity financing (American Superconductor opts for secondary offering, 2003). Therefore, with cash reserves of only $12.1 million, there's some concern that the company could not make regular monthly debt payments on an ongoing basis. In particular, a forecast for a reduction in the cost of funding operations from $48 million to $13-$15 million is pretty drastic for a growth company and AMSC may end up with more operational costs than it is currently anticipating. Even if it could meet the regular debt payments, AMSC can use the money that would have gone towards those debt payments to further invest in its business which appears to have exciting growth potential.
With the equity financing choice, payment distribution to shareholders occurs on a yearly basis at which time the company can determine appropriate dividend payments after it's fully aware of its yearly financial performance. This situation can be very good for shareholders if AMSC performs as intended.
Although there are a few draw backs, these are not serious. True, additional equity financing means relinquishing more company control, but the company is already public. As such, AMSC is under the pressure of investors and subject to the extensive reporting and legal and regulatory compliance requirements that come with being a public entity. Currently, AMSC is entirely equity financed and this may not necessarily be desirable in the future. but, AMSC can always buy back shares...
Boston Business Journal. http://boston.bizjournals.com/boston/stories/2003/08/25/daily4.html
Equity financing. http://www.answers.com/topic/equity-financing
What are the advantages and disadvantages of debt financing? (2007). http://bondsdebt.net/Debt/debt-financing-advantages/
$50 million is public stock prices has risen 305% this year
. First, AMSC has picked up revenue momentum and is on track toward achieving its target of $45 million to $50 million in revenue this year, more than doubling revenue of fiscal 2003.
Secondly, AMSC's high temperature superconductor motor and generator business unit, which is working on a large U.S. Navy contract, was profitable in the first quarter ended June 30 -- one quarter ahead of expectations.
Finally, the Northeast blackout "shined a lot of light on the problems we have been talking about as a company for three to four years,"
At June 30, AMSC had cash reserves of $12.1 million. Last year the company spent $48 million to fund operations. But this year, because of cost savings and other steps, spending is forecast at $13 million to $15 million.
AMSC needs the money for general corporate purposes and to scale up manufacturing at Devens of its second-generation high temperature superconductor wire
