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If we are talking strictly about the economic measures going into a business decision, using (cheap QE) debt to finance capital expenditures was a good idea. T
by CompelTechnic 8y ago
If we are talking strictly about the economic measures going into a business decision, using (cheap QE) debt to finance capital expenditures was a good idea. The profit being made off of the capex justifies it well. It is not unsustainable in the sense of a business decision.
- tim333 8y agoThe article argues much of the industry may not be profitable on using normal accounting and: >the public markets have been valuing fracking companies not based on a multiple of profits, the standard way of valuing a company, but rather according to a multiple of the acreage a company owns. A bit like valuing dot coms on eyeballs rather than GAAP profits. It all depends on oil prices and the like I guess though.
- panzagl 8y agoThere's a difference between a company being profitable (revenues>income) and being profitable to investors (stock goes up). Oil companies are profitable, but bad investments, especially long term.
- Brakenshire 8y agoFracking requires ongoing capital investment though, so what happens when the interest rates go up?
- CompelTechnic 8y agoAssuming they are fixed rate loans, it would not effect capex purchases that have already been made. Less purchases would happen in the future though (only ones meeting the more stringent requirements on investment payback that go with a higher interest rate)