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If you have cash on your balance sheet you usually use the majority of it in an acquisition, unless you either know you want to do another deal at a time when equity / debt will be more expensive or you want to keep it to handle working capital emergencies your revolver can't.
Debt is typically used in lieu of cash or if a company is pursuing a more aggressive acquisition strategy. It's commonly cheaper than equity and so it can be a frequent consideration for many companies, especially those which do deals often and don't have large cash balances / don't want to dilute equity.
Using debt for an M&A deal will increase your interest expense on the income statement. Debt shows up under cash flows from financing, and as a LT liability on the balance sheet. Using cash for an M&A deal will decrease your interest income on the income statement. Believe the decrease in cash from an acquisition shows up under CF from investing, and then your cash decreases under current assets on the balance sheet.
thank you!
Good answer thanks, quickly broke down the issue.
Just one question, how would decreasing cash decrease interest expense? Are you saying versus debt?
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