Two uses of loan or capital investments

Rizal Philippines
July 21, 2019

There are only two major uses of additional capital investments or loan proceeds - 1.  to increase revenues, and 2 to reduce expenses. My take on the above as a former banker and businessman...   Whether  that they will be used for equipment or working capital (as more inventories or more investment in receivables.)   They should not be used for luxury nor for other plain expenses..Or to make the business remain in status quo condition.   . If the bankers would be strict about this, there would be lesser defaults. However this might not be applicable to dot.com companies or programming business?

MVP has been notorious in cap ex planning to demand revenue generation for any cap ex request.   Buying for the sake of buying should not be allowed.  

Thus think of somebody who bought a machine for P1 million but is capable of peeling potatoes at the rate of  P100 million worth of french fries a year.   Or a machine that will save you P20 million a year  . Even a weighing scale for trucks that can detect palusot or over packing products is worth the money put into it.

We had an elderly friend who accompany us on 4x4 adventure, who told of a story that he was commissioned by a cigarette manufacturing company to build a machine that can pack 36 sticks into a box.  
Because he was a genius in machine work he was able to build one.   He demonstrated its efficiency and capability and it worked.   He was asked how much the company will pay? He said P1.2 million.  Well the purchaser and the VP for manufacturing haggled to reduce the price to 1/10 the amount since they costed the labor and materials to be only that much.

The machinist said let us match manual labor and the machine to produce the same output. The P1.2 million he said will be the salary of workers packing the  cigarette.  They tried and soon paid the P1.2 million he priced for the machine..