{"id":2751,"date":"2018-10-15T09:00:21","date_gmt":"2018-10-15T03:30:21","guid":{"rendered":"http:\/\/capitalante.com\/?p=2751"},"modified":"2019-02-27T10:11:09","modified_gmt":"2019-02-27T04:41:09","slug":"the-benefits-of-investment-in-debt-free-companies","status":"publish","type":"post","link":"https:\/\/capitalante.com\/the-benefits-of-investment-in-debt-free-companies\/","title":{"rendered":"The Benefits of Investment in Debt Free Companies"},"content":{"rendered":"

Companies carry out daily businesses with capital. This capital is either their own fund or they borrow the capital from somewhere. Different companies have different kinds of financial condition. A company either uses its own capital or it may borrow the fund from a bank or any other financial institutions to run the business. Here we will discuss the benefits of investment in debt free<\/g> companies.<\/span><\/p>\n

What is Debt: Equity ratio<\/strong><\/span><\/h6>\n

Debt: Equity ratio<\/strong> is the comparison between a company\u2019s own capital and the debt which the company borrows from a bank or a financial institution. Suppose a company has a capital of Rs. 100\/- and it has borrowed Rs. 100 from a bank. So the debt ratio of the company is 100:100 = 1<\/span><\/p>\n

When a company borrows fund from somewhere, obviously it is subject to pay off the debt to the lender. The company pays off the debt including interest from the profit the company earns by carrying out its business. Generally<\/g> it is noticed that a highly<\/g> debt company has to spend a lion share of its profit to repay the debt. After the payment of debt, the company is left with a little amount of the profit margin from operations. The small amount of money is not enough to expand a business i.e., setting up a new factory throughout the country or restructuring the company.<\/span><\/p>\n

On the other hand, a debt free<\/g> company or a company with marginal debt does not have to face the burden of any kind of repayment of loan<\/g>. So, it can use its profit margin for the enlargement of its business leading to higher profit margin in the near future. As a result, the shareholders will get better capital appreciation and good dividend payout.<\/span><\/p>\n