Welcome to my new blog, Let’s discuss and know the debt-free companies of 2020. And little discussion on debt-related ratios.
We must have read many times on TV or in the newspaper, the company is going to be insolvent, the company has a huge debt. So we discuss should we invest in debt or debt-free companies.
When we going to invest, we take complete information about that scheme first and only then decide whether to invest or not. For example, if you are investing in a stock market, then you will invest by checking the entire fundamentals ratio and annual reports of that stock, but sometimes there is some mismatch to test some ratio. This means that the relative ratios of debt are correct, but we are unable to take the correct decision due to the different numbers.
Why should we choose debt free companies
Why should we choose debt-free companies to invest? When the company remains debt-free, the company has great ease in arranging its business. When the company makes a good profit, the company invests the same profit business because there is no debt on the company so the company should reinvest profits in the business expansion or gives best dividends to their shareholders.
Many investors like to invest in debt-free companies. You see advertisements for many companies on TV and many times companies are shown to be exaggerated in business channels. No matter how business is big, and how popular it is, we understand the entire condition of the company from the balance sheet itself, to checking its ratio and company reports.
A company that has a lot of debt has to face a lot of problems in bad market conditions. And at such a time, it is challenging for the company to run its operations. If the company does not have debt, then the company can survive even in panic market times and it should works in its operations. Your investment in the company may not be too in huge profits but your investment will safe till the very long time as in working operations.
Should Invest only in Debt Free Companies?
Now, it is not that we should invest only in debt-free companies. Many times the company takes debt for expanding their Business. So we should also check the assets and liabilities of the company. How much debt a company has taken is reflected in the balance sheet. There are some ratios for debt as well. So that you can know what is the financial condition of the company.
Debt To Equity Ratio:
It has a simple formula you can check in the Image. Whatever the Total debt of the company is, we divide by Total Equity. Total debt includes long term debt and short term debt. Long term debt you will get in non-current liabilities and the short debt you will get in current liabilities. Through the balance sheet, you will get all information about company financials.
Keep in mind that the debt to equity ratio should be less than one (D/E < 1). Meaning if the company has less debt then the company can easily manage the debt with total equity. If the company has more debt and is in trouble, then the company have chances go in bankrupt.
You may see more than one D/E ratio in any sector. Such banks, power companies, these companies take a lot of debt because of this the Debt to Equity ratio shows more than One. And you may see D/E less than one, frequent in software and retail sectors.
If the management of a company is good then even with the debt companies can manage their business easily. But without debt, company reinvest its profits in business for expand and also pay dividends to its shareholders.
|Name||Market Cap||P/E||Debt (Cr)|
|Sun TV Network||15075.71||10.88||0.00|
|C D S L||3121.94||29.41||0.00|
|Multi Comm. Exc.||6860.01||29.00||0.00|
|Name||Market Cap||P/E||Debt (Cr)||Debt/Equity|
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