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Rather fluffy article but one point I'd like to raise is that it is odd for a consistently profitable company to avoid debt. Debt can be a good thing, it can h

by smakz 17y ago

Rather fluffy article but one point I'd like to raise is that it is odd for a consistently profitable company to avoid debt. Debt can be a good thing, it can help finance growth or reduce monthly costs to increase cash flow. For the same reasons there could be justifiably good financial reason to get a mortgage even though you could pay for the house in cash, relating to tax benefits and other incentives. Once you are consistently profitable, or have a high paying job that affords significant personal cash flow, you might be inclined to forgo all debt entirely, but on the other hand once you are in this scenario you are the least likely to default on a debt and have the capacity to take bigger risks by borrowing without ruining either your credit or causing an immense about of stress. It's great I guess that they don't take the debt approach, but it's not necessarily a positive thing, and I bet I could look at their financial statements and see tons of opportunity to leverage debt that would free up cash flow so they could be making better use of their capital.

borism 17y ago
> Debt can be a good thing yes, it can be or can not be - it's an uncertainty they try to avoid. Buffet quote: “Leverage, is the only way a smart guy can go broke … You do smart things, you eventually get very rich. If you do smart things and use leverage and you do one wrong thing along the way, it could wipe you out, because anything times zero is zero. But it’s reinforcing when the people around you are doing it successfully, you’re doing it successfully, and it’s a lot like Cinderella at the ball. The guys look better all the time, the music sounds better, it’s more and more fun, you think, ‘Why the hell should I leave at a quarter to 12? I’ll leave at two minutes to 12.’ But the trouble is, there are no clocks on the wall. And everybody thinks they’re going to leave at two minutes to 12.”
portman 17y ago
>> "it is odd for a consistently profitable company to avoid debt" It's also probably not true, unless 37Signals uses their debit card for every random purchase they make. A credit card is a perfect example of why debt is not categorically bad. If you pay off the debt within 30 days, you have a 0% interest rate. You also probably earned some kind of rebate, airmiles, or loyalty points. And you probably saved time over trying to pay for the product using cash or check. Purchasing with a credit card is a small example of how intelligent use of debt can be a wise business decision.

by smakz 17y ago

borism 17y ago

> Debt can be a good thing yes, it can be or can not be - it's an uncertainty they try to avoid. Buffet quote: “Leverage, is the only way a smart guy can go broke … You do smart things, you eventually get very rich. If you do smart things and use leverage and you do one wrong thing along the way, it could wipe you out, because anything times zero is zero. But it’s reinforcing when the people around you are doing it successfully, you’re doing it successfully, and it’s a lot like Cinderella at the ball. The guys look better all the time, the music sounds better, it’s more and more fun, you think, ‘Why the hell should I leave at a quarter to 12? I’ll leave at two minutes to 12.’ But the trouble is, there are no clocks on the wall. And everybody thinks they’re going to leave at two minutes to 12.”

portman 17y ago

>> "it is odd for a consistently profitable company to avoid debt" It's also probably not true, unless 37Signals uses their debit card for every random purchase they make. A credit card is a perfect example of why debt is not categorically bad. If you pay off the debt within 30 days, you have a 0% interest rate. You also probably earned some kind of rebate, airmiles, or loyalty points. And you probably saved time over trying to pay for the product using cash or check. Purchasing with a credit card is a small example of how intelligent use of debt can be a wise business decision.