Experts in Exploring Multibagger Small Cap Stocks Hidden Gems. Unfortunately, the answer isnt as easy as yes or no. The correct answer is it depends. Broken Crack Pipes. The problem is that some industries typically require more debt than others do. For these industries, a higher debt load is normal. For example, utilities often borrow large sums of money when building new power plants. It may take several years to build the plant, which means no revenue and lots of debt. Cash Cow. However, the useful life of power plants spans many years and when the debt on the plant is repaid the facility can become a real cash cow for the utility. For other industries, a large debt load may signal something seriously wrong. Of course, any company might pickup a big note if it just bought a building or a competitor. There are several tools you can use to determine whether a company is exposing itself to too much debt. 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The formula is Total Liabilities Shareholder Equity Debt to Equity Ratio. A ratio of 1 or more indicates the company is using more debt than equity to finance assets. A high number when compared to peers in the same industry may mean the company is at risk in a market where interest rates are on the rise. If a company has debt, it has interest expenses. Should you invest in companies that carry large amounts of debt That is a question every investor should ask when evaluating stocks. Fat Burning Green Tea Pills Synergy Weight Loss Spartanburg Sc Fat Burning Green Tea Pills Thin 7 Weight Loss Pills Obesity Weight Loss Surgery. Rubber Compounding EbookersThere is a metric called Interest Coverage that will give you a good idea if a company is having trouble paying the interest charges on its debt. The formula is EBITDA Interest Expense Interest Coverage. EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization and measures the operating performance of a company before accounting conventions and non operational charges such as taxes and interest. Ratio. The resulting ratio tells you whether a company is having trouble producing enough cash to meet its interest expense. Rubber Compounding Ebook' title='Rubber Compounding Ebook' />We provide services like Plastic Pipe Testing, Deformulation, Material Selection, Plastics Testing, Research and Development in Australia. Custom Patch Companies here. Colors From A Zionists Palette A Trilogy Operative Techniques Foot And Ankle Surgery Book Website And Dvd 1e Honda Manual Downloads 1996 2003 Atv Polaris Sportsman. A ratio of 1. 5 or higher is where companies want to be. A lower ratio may indicate that the company has trouble covering interest expenses as well as other costs. Debt is not a bad thing when used responsibly. It can help businesses grow and expand. However, misuse of debt can result in a burden that drags down a companys earnings. We learnt from the great crisis of 2. While debt per se is not bad if the company is able to borrow at a lower rate and deploy it in its business at a higher rate, the operating leverage works in its favour, excessive debt with high interest and repayment obligations can crunch the stock in times of downturn. So, as a long term investment philosophy, it is best to steer clear of high debt companies. Avoid Investing in Companies with High Capex Requirement We know the demerits of investing in stocks like Suzlon GMR which have an insatiable appetite for more and more capital. To feed their perennial hunger, these companies dilute their equity by making FPOs, GDRs FCCBs resulting in total destruction of shareholders wealth. Companies should be lean and mean requiring minimal capital but generating huge returns there from. 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