3 ms·
Not sure about that. A large part of the company (everybody close to money) probably see debt as a good thing because it lets them buy stuff. Of course you have
by pmontra 4y ago
Not sure about that. A large part of the company (everybody close to money) probably see debt as a good thing because it lets them buy stuff. Of course you have to pay debt to creditors and how do they do it? By making more debt. It works well until you have to pay it off, all of it. So if they ever enter in a discussion about technical debt expect them to suggest to make more debt (and move faster.)
Building without foundations, driving blindfolded, etc, could be better metaphors everybody can agree upon. If you're talking with a CFO, talk about high leverage (as for derivatives.)
- eru 4y agoWhy would you have to pay off all the (financial) debt? Debt can be a permanent part of your company's capital structure just like equity can be a permanent part. Or do you have a plan to buy back all outstanding stock? (Yes, real world debt in the form of bonds a due date, when you have to roll it over. But that's an accident of history. Instead companies could also sell perpetual bonds and put options on those bonds for the same effect.) In finance terms, loosely speaking debt is the part of your capital structure whose cost is fixed in nominal terms. Equity gets the remainder of your income stream. About high leverage: the more of your income stream you parcel out for fixed payments, the more you 'concentrate' your equity and the variability of the residual income it gets. (Overall, I blame tax systems that give preferential treatment to debt over equity. Roughly, you can pay the capital cost of your debt with pre-tax money, but the capital cost of your equity comes out of post-tax money. Put them on equal footing, and you'll solve quite a few problems.)