Money and Finance
When it comes to capitalizing a company management has two options: equity or debt. If you look across the publicly available companies you'll find all sorts of mixes in capital structures. Some companies like Visa (V) (Analysis Here) are fully equity financed and carry no debt. Other companies like Clorox (CLX) (Analysis Here) push their debt and leverage to the max. As of the end of 2015 Clorox had over $9 of long term debt for every $1 of equity. You'll also find the majority of companies somewhere in between those two with a healthy dose of leverage.
Debt is commonly known as a double edged sword meaning it cuts both ways. Debt can help when things are going well and provide much needed capital to businesses to allow them to grow. This can juice returns during the good times. However, it can also be a drag on companies whenever operations begin to falter or growth slows.
When investing in companies it's important to look at the capital structure to see how things stand and the direction they're heading. Debt is okay when it's used prudently; however, you have to be vigilant and make sure that it's appropriate given the business model.
Today I wanted to take a look at the effect that debt can have on the results of a hypothetical company.
Read more »
- Links
Malcolm Gladwell's latest: What Social Scientists Learned from Katrina (LINK) The critical article on Amazon's working environment making the rounds (LINK), and Jeff Bezos' response (LINK) Panel discussing Google's reorganization...
- Profitability And Growth...
"For profitability, growth is a double-edged sword. It always requires additional investment, and the prospects of earning more than the cost of capital depend on the position of the firm in its industry. For companies with competitive advantages that...
- Apple: News, Noise And Value - By Aswath Damodaran
The net effect of these changes is that the value per share that I obtain for Apple is about $588, about 3.5% lower than the value of $609 that I estimated in early January. You can download the spreadsheet with my valuation of Apple. Again, make your...
- You Can't Clean Up A Messy Valuation: The Clorox Company Dividend Stock Analysis
Consumer staple companies make for excellent defensive investments and dividend growth candidates due to the rather inelastic demand for their products. For those companies that have established brands and market share they can typically pass along input...
- Is Clorox A Buy?
All time market highs make bargain hunting hard graft (in the US markets at least). Where can we find a safe harbor to invest at current prices? Over at Morningstar, Josh Peters makes the case for Clorox. I really like finding companies like Clorox...
Money and Finance
The Double Edged Sword
When it comes to capitalizing a company management has two options: equity or debt. If you look across the publicly available companies you'll find all sorts of mixes in capital structures. Some companies like Visa (V) (Analysis Here) are fully equity financed and carry no debt. Other companies like Clorox (CLX) (Analysis Here) push their debt and leverage to the max. As of the end of 2015 Clorox had over $9 of long term debt for every $1 of equity. You'll also find the majority of companies somewhere in between those two with a healthy dose of leverage.
Debt is commonly known as a double edged sword meaning it cuts both ways. Debt can help when things are going well and provide much needed capital to businesses to allow them to grow. This can juice returns during the good times. However, it can also be a drag on companies whenever operations begin to falter or growth slows.
When investing in companies it's important to look at the capital structure to see how things stand and the direction they're heading. Debt is okay when it's used prudently; however, you have to be vigilant and make sure that it's appropriate given the business model.
Today I wanted to take a look at the effect that debt can have on the results of a hypothetical company.
Read more »
- Links
Malcolm Gladwell's latest: What Social Scientists Learned from Katrina (LINK) The critical article on Amazon's working environment making the rounds (LINK), and Jeff Bezos' response (LINK) Panel discussing Google's reorganization...
- Profitability And Growth...
"For profitability, growth is a double-edged sword. It always requires additional investment, and the prospects of earning more than the cost of capital depend on the position of the firm in its industry. For companies with competitive advantages that...
- Apple: News, Noise And Value - By Aswath Damodaran
The net effect of these changes is that the value per share that I obtain for Apple is about $588, about 3.5% lower than the value of $609 that I estimated in early January. You can download the spreadsheet with my valuation of Apple. Again, make your...
- You Can't Clean Up A Messy Valuation: The Clorox Company Dividend Stock Analysis
Consumer staple companies make for excellent defensive investments and dividend growth candidates due to the rather inelastic demand for their products. For those companies that have established brands and market share they can typically pass along input...
- Is Clorox A Buy?
All time market highs make bargain hunting hard graft (in the US markets at least). Where can we find a safe harbor to invest at current prices? Over at Morningstar, Josh Peters makes the case for Clorox. I really like finding companies like Clorox...