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How much debt is too much debt?
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[QUOTE="Caramelle, post: 216517, member: 150"] [JUSTIFY]Financial leverage can be a great technique for acquiring the needed funds for business expansion or capital spending. Many companies resort to loans in order to achieve rapid growth. Some business opportunities require quick decision-making and capitalization that may not be readily available. Business owners and top management may resort to third-party funds when their own funds are tied up somewhere and they are quite positive that the returns of the project will exceed the cost of its capital or investment. In such cases, loans can be advantageous when used properly and effectively. However, when a business starts accessing loans to fund its operations, that could be a red flag for the company's ability to sustain itself. A business that has been operating for some time is expected to generate sufficient revenue to support its activities and bring profits to its owners. When it has to borrow funds for its working capital or day-to-day expenditures, it is obviously not performing well and probably not even producing enough to reach its breakeven point. Obtaining more loans will merely compound its problems and delay the inevitable. At the first hint of financial difficulties, the management should have addressed the issues and actively implement measures to improve its sales and cut back on operating costs. [/JUSTIFY] [/QUOTE]
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How much debt is too much debt?
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