3 ms·

That's fantastic debt though, at presumably low interest rates. A dollar in my pocket today is worth way more than a dollar in debt at 3.0% interest or less. Yo

by hirsin 4y ago

That's fantastic debt though, at presumably low interest rates. A dollar in my pocket today is worth way more than a dollar in debt at 3.0% interest or less. You can't subtract debt from cash on hand and get a usable value, they're different types.

kevin_thibedeau 4y ago
[flagged]
- olliej 4y ago
  A fantastic thing in fact!
- idontpost 4y ago
  [dead]
- zdbrandon 4y ago
  It's "MBA circle jerk" to understand that taking out debt at a lower rate than the ROI you use the debt for is advantageous?
  - harvey9 4y ago
    I don't really agree with the person you replied to because 'enough to bankrupt a small country' is not a helpful comparison. But while the debt obligations are certain, the ROI is less so.
- belval 4y ago
  Not really, it's financing 101. If the cost of borrowing money is low then it's worth taking on debt to finance your growth. Once the rates rise you can service that debt (likely at ~1.5%) and reap the rewards on extend yourself with those low interest rates. You don't even need to be an MBA so see that value, even your dentist probably does it. If they can borrow 150k and increase the size of their clinic, they can then get more money from providing their services to more people. If you comment was more aimed at the amount, $77B, then keep in mind that it's far from a bad ratio considering the assets of MSFT at 107B that's 0.7 which is high but not abnormally high considering that we are coming out of historically low rates. Finally, there is such a thing as carrying too little debt, which is unsurprisingly a bad thing because it hinders your growth. Think about what MSFT did with that money. They hired people and developed new products to fight AWS and GCP if they hadn't done that, their rate of innovation would be lower and they would have fallen behind, slowing their future growth. Without cheap debt they likely wouldn't have given a ton of compute to OpenAI for ChatGPT which is now making MSFT look much better compared to Google and Amazon.
ttt333 4y ago
Could you clarify what you mean about the dollar in your pocket worth more than debt at 3% interest? In corporate finance net cash or net debt is indeed standard practice (cash on balance sheet less debt on balance sheet). It sort of helps understand how much cash is ‘available’ to give back to investors, or pay down debt, spend on R&D, etc. Now since most of MSFT’s long term debt matures in 2027 or after, you could argue that there is not much cash need for debt repayments in the near term. On the other hand, cash flow from operations was down year over year in their last reported quarter so belt tightening is probably needed to reverse that trend.
- gradstudent 4y ago
  > In corporate finance net cash or net debt is indeed standard practice (cash on balance sheet less debt on balance sheet). It sort of helps understand how much cash is ‘available’ to give back to investors, or pay down debt, spend on R&D, etc. I'm not a financier, but isn't "available cash" the amount left over after subtracting the amount needed to service (rather than clear) the debt?
  - ttt333 4y ago
    Fair question. My answer would be... kinda. The cash available on an ongoing basis to be re-invested or returned to investors is what you might call levered free cash flow [0], which I think is what you are referring to. My comment about "available" cash is more like available for big one-time investments like a big acquisition, a special dividend, or something like that. [0]: https://www.investopedia.com/ask/answers/111714/whats-difference-between-levered-and-unlevered-free-cash-flow.asp https://www.investopedia.com/ask/answers/111714/whats-differ...
brewdad 4y ago
That's exactly what a balance sheet does. Offset assets and liabilities.

by hirsin 4y ago

kevin_thibedeau 4y ago

[flagged]

olliej 4y ago
A fantastic thing in fact!
idontpost 4y ago
[dead]
zdbrandon 4y ago
It's "MBA circle jerk" to understand that taking out debt at a lower rate than the ROI you use the debt for is advantageous?
- harvey9 4y ago
  I don't really agree with the person you replied to because 'enough to bankrupt a small country' is not a helpful comparison. But while the debt obligations are certain, the ROI is less so.
belval 4y ago
Not really, it's financing 101. If the cost of borrowing money is low then it's worth taking on debt to finance your growth. Once the rates rise you can service that debt (likely at ~1.5%) and reap the rewards on extend yourself with those low interest rates. You don't even need to be an MBA so see that value, even your dentist probably does it. If they can borrow 150k and increase the size of their clinic, they can then get more money from providing their services to more people. If you comment was more aimed at the amount, $77B, then keep in mind that it's far from a bad ratio considering the assets of MSFT at 107B that's 0.7 which is high but not abnormally high considering that we are coming out of historically low rates. Finally, there is such a thing as carrying too little debt, which is unsurprisingly a bad thing because it hinders your growth. Think about what MSFT did with that money. They hired people and developed new products to fight AWS and GCP if they hadn't done that, their rate of innovation would be lower and they would have fallen behind, slowing their future growth. Without cheap debt they likely wouldn't have given a ton of compute to OpenAI for ChatGPT which is now making MSFT look much better compared to Google and Amazon.

ttt333 4y ago

Could you clarify what you mean about the dollar in your pocket worth more than debt at 3% interest? In corporate finance net cash or net debt is indeed standard practice (cash on balance sheet less debt on balance sheet). It sort of helps understand how much cash is ‘available’ to give back to investors, or pay down debt, spend on R&D, etc. Now since most of MSFT’s long term debt matures in 2027 or after, you could argue that there is not much cash need for debt repayments in the near term. On the other hand, cash flow from operations was down year over year in their last reported quarter so belt tightening is probably needed to reverse that trend.

gradstudent 4y ago
> In corporate finance net cash or net debt is indeed standard practice (cash on balance sheet less debt on balance sheet). It sort of helps understand how much cash is ‘available’ to give back to investors, or pay down debt, spend on R&D, etc. I'm not a financier, but isn't "available cash" the amount left over after subtracting the amount needed to service (rather than clear) the debt?
- ttt333 4y ago
  Fair question. My answer would be... kinda. The cash available on an ongoing basis to be re-invested or returned to investors is what you might call levered free cash flow [0], which I think is what you are referring to. My comment about "available" cash is more like available for big one-time investments like a big acquisition, a special dividend, or something like that. [0]: https://www.investopedia.com/ask/answers/111714/whats-difference-between-levered-and-unlevered-free-cash-flow.asp https://www.investopedia.com/ask/answers/111714/whats-differ...

brewdad 4y ago

That's exactly what a balance sheet does. Offset assets and liabilities.