Report to the CEO 1.2 Can the company raise capital?

Twitter has the ability to raise capital. It is rapidly growing, has strong cash inflows, and a healthy balance sheet. This gives Twitter the flexibility to raise debt capital, because its liquidity will attract investors, and furthermore Twitter’s increasing financial stability reflects a maturing business that implies long term cash flow stability.

Bond investors tend to also look at the debt-to-equity ratio, as a high debt-to-equity ratio is typically associated with a company that would be higher risk. Twitter’s long term debt-to-equity is declining, largely because its profitability, and reductions in R&D spend are putting Twitter in a position of growing equity more quickly than it is growing debt. The company’s total liabilities are increasing, but long-term debt is not increasingly in any significant way. Equity is increasing significantly, and that is why the long-term debt to equity ratio is declining, and now is fairly low. Both the absolute figure of 25.% and the downward trend in this ratio mean that raising debt will be fairly easy for Twitter.

The company could also raise more equity from shareholders, should it want to, because of...

The company has recently shifted to become profitable, which would make it more attractive for an equity investor. It is more likely that it would turn to bond markets, but an equity issue of some kind is still an option for Twitter given its current financial health.
1.4 What are the implications of the financials for future strategy and execution of strategy?

Twitter’s financials indicate that the company has turned a corner strategically. Now that it is profitable, it has the ability to increases costs – it has been working to lower R&D costs in particular in order to achieve profitability. The company will probably stay the course, now that it has a more mature business with stable advertising revenues. Twitter will likely increase in some investment areas to match the growth in the overall size of the company, but will continue to hold the line on increased investments in order to build its financial health.

However, the improved profitability does give Twitter the option to increase R&D investments, should it find another area of business with a solid ROI potential. It now has a health cash position that it can use for R&D or for acquisitions in in order…