How to know if more debt is sweet or bad for company? On a private front stock market courses online free, a private should attempt to live a debt free life. But debt for a corporation , might not be bad. Sure, debt isn’t apt for all companies. except for some, debt acts sort of a leverage. For such companies, debt helps to extend their EPS.All good companies always tries to enhance their EPS over time.
For companies, availing debt is normal. Unlike individuals, companies, don’t take debt for overspending but can get stock market courses online free. But this is often also a incontrovertible fact that , not all companies has appetite to digest debt. In financial terms, “appetite for debt” is named “financial leverage”. a corporation which has high financial leverage can use debt to enhance its EPS.
Hence investors should check the “financial leverage” of the corporate before investing. Idea is to understand , if the corporate is utilising debt profitably or not. Even if the company’s “financial leverage” is high today, stock market courses online free it doesn’t mean that it can take any amount of debt. to know this idea , lets ask a basic question.
Why companies take debt? Debt may be a “source of fund” for the businesses and get stock market courses online . A typical company can have the subsequent source of funds:
Long term debt.
Short term debt.
Why companies need funds?
They need funds to finance their operations.This money is employed to buy the raw materials, utility bills, salaries, etc.“Funds” are like blood flowing within the veins of the corporate . it’s easier to boost funds by debt. Hence companies often fall within the trap of “excess debt”.