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Hi Sir
Please help me by explaining the treatment of the loan issues we find mostly as an adjustment in question 2. I fail to understand what they mean by redemption and effective and convertible loans.
The ‘convertible’ bit means that the company may not have to pay the bank back with cash, but perhaps shares.
example:
2% Convertible Payable Loan €1,000
This basically means the company has offered the bank the option to convert the loan at the end into shares instead of simply taking €1,000.The important thing to notice is that that the bank has the option to do this.
Should the share price not prove favourable then it will simply take the €1,000 as normal.
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