| | | Good Morning Bob,
Debt free is a beautiful business model, IMO.
Yes, generally speaking having little or no debt is the way to go for a company.
Where debt, i.e. "borrowed money", can be advantageous, IMO, is if a company wants to expand or purchase something that it believes will be beneficial for its business .... BUT, in that instance the interest rate that it pays on that debt must have been calculated by that company's management to be LESS than the Return that the company will make using that "borrowed money", .... i.e. Debt Interest Rate = (say) 5%, Return that the company will make on that "borrowed money" = (say) 10%.
IMO, the Critical component of Debt is that "Interest Expense" number that one sees on the Income Statement because that is what can reduce the "Profit Before Tax" number and eventually its Bottom Line.
I always check out the ratio of "Interest Expense/EBITDA" to see what effect the Debt expense is having on the Revenue left over at the EBITDA level.
According to Buffett's "Modus Operandi" ---->
Message 29804904
..... he prefers "Interest Expense < 15% x EBIT "
bruwin |
|
