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WHAT AND WHY?
Low Debt / Equity Ratios
What? – Debt to Equity displays the financial leverage a company takes on to grow and support their operations. – It gives investors a glimpse if a company is raising capital through debt products more than they are using equity provided by investors.
Why? – If a company is highly leverage (i.e., having copious amounts of debt) then they are more susceptible to risk to their operations if any economic downturn occurs of if interests’ rates increase. Yet, they can grow at a faster pace and use the capital provided by investors on other growth projects.
If a company is uses equity, then they are less susceptible to risk to their operations if any economic downturn occurs of if interests’ rates increase. However, they cannot grow their business as fast as a company that uses more debt.
CITE: https://www.r2library.com/Resource/Title/0826102549
Now What? Compare the stocks within this list to equally sized stocks within a similar industry sector.
For example, Compare Small Cap tech stocks with one another. Determine if they are trying to grow their business or if they are trying to save the business by lending capital to turnaround their company and avoid bankruptcy.
RELATED: https://medicalexecutivepost.com/2021/10/10/what-is-medical-practice-financial-ratio-analysis/
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Filed under: "Ask-an-Advisor", Glossary Terms, Investing | Tagged: debt, debt to equity, debt to equity ratio, equity, financial ratios, ratio analysis |
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