Lowering DEBT Leads To Better Performance
Dalal Street Investment Journal|February 17, 2020
Debt is a perfect example of the proverbial two-edged sword. The clever use of leverage can boost the returns a company generates for its shareholders to a large extent; however, it is difficult to carry a large amount of debt successfully in a tough economic condition. Lately, we have seen a number of companies lowering their debt levels. Join us as we go about finding out what is the right capital structure and analysing the performance of certain companies that have moved away from debt
Lowering DEBT Leads To Better Performance

For a business to continue to be successful, it has to invest in new plant and equipment to generate additional revenues. This is the fundamental basis for driving future growth. Finding sources for funding is perhaps one of the most important decisions the management of a company has to take to finance its assets, day-to-day operations and future growth. From a tactical perspective, the capital structure of a company influences everything from a firm’s risk profile, the return its investors expect and its degree of insulation from macroeconomic factors.

One way to pay for these investments is to generate capital from the firm’s operations. The earnings a firm generates can either be distributed as a cash dividend or ploughed back into the firm. But more often than not, the retained earnings of a firm are insufficient to support profitable investment opportunities. In that case, a firm is faced with a decision: to raise new capital either by borrowing (incurring debt) or by selling additional ownership (equity). The combination of the two used to finance a company’s projects is called the capital structure. Hence the capital structure of a firm is a mix of debt, internally generated funds and new equity. But what is the right mixture?

This story is from the February 17, 2020 edition of Dalal Street Investment Journal.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.

This story is from the February 17, 2020 edition of Dalal Street Investment Journal.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.

MORE STORIES FROM DALAL STREET INVESTMENT JOURNALView All
Base Rate Investing: The Smart Investor's Secret
Dalal Street Investment Journal

Base Rate Investing: The Smart Investor's Secret

Base rate investing offers a distinct advantage to investors encouraging them to look beyond the noise and focus on underlying fundamentals and longterm trends. The article explains how by understanding and applying this strategy effectively, you can make informed investment decisions and potentially outperform the market over time

time-read
9 mins  |
March 11, 2024
Back To The 'All is Well' Feeling
Dalal Street Investment Journal

Back To The 'All is Well' Feeling

Domestic indices hit record highs on the back of robust performance in real estate, power, metals and automotive sectors

time-read
2 mins  |
March 11, 2024
Should Commodity Funds Be Part Of Your Portfolio?
Dalal Street Investment Journal

Should Commodity Funds Be Part Of Your Portfolio?

Commodities serve as tangible assets that offer investors a means to engage with the real economy and provide a degree of insulation from financial system disruptions. In this scenario, multi-asset allocation funds represent a more efficient vehicle for commodity exposure compared to hybrid schemes. Here are the details

time-read
8 mins  |
March 11, 2024
Asset Allocation & Diversification
Dalal Street Investment Journal

Asset Allocation & Diversification

Remember, when you diversify your investments, you minimise the chances of suffering from what is known as 'single security risk', or the risk that your investment will fluctuate widely in value with the price of one holding.

time-read
2 mins  |
March 11, 2024
Does AUM Size Matter?
Dalal Street Investment Journal

Does AUM Size Matter?

Investors generally focus on a fund's past returns. They think that a larger fund is better. On the flip side, some investors raise concerns about whether a fund can sustain its strong performance after growing to a substantial size. What is the reality? Rakesh Deshmukh takes a closer look at the scenario

time-read
6 mins  |
March 11, 2024
Ten Commandments of Wealth Creation
Dalal Street Investment Journal

Ten Commandments of Wealth Creation

Financial Planning

time-read
3 mins  |
March 11, 2024
Gold Glitters Amid a Narrow Range Trading
Dalal Street Investment Journal

Gold Glitters Amid a Narrow Range Trading

Over the last two weeks, the commodities market displayed cautious activity with investors trading within narrow margins, eagerly awaiting pivotal economic data and insights from Federal Reserve officials.

time-read
2 mins  |
March 11, 2024
Can Global Equities Sustain the February Momentum?
Dalal Street Investment Journal

Can Global Equities Sustain the February Momentum?

Even though the markets touched new highs in February, they did experience some challenges, notably in the bond sector, which faced difficulties due to an uptick in interest rates.

time-read
2 mins  |
March 11, 2024
"Future outlook of railways and railway wagons industry appears promising"
Dalal Street Investment Journal

"Future outlook of railways and railway wagons industry appears promising"

Umesh Chowdhary Vice Chairman & Managing Director Titagarh Rail Systems Limited

time-read
3 mins  |
March 11, 2024
Metals and Mining: Poised For A Steely Performance
Dalal Street Investment Journal

Metals and Mining: Poised For A Steely Performance

While investors were drawn to the impressive rally in metal stocks, the recent interim budget indirectly bolstered the metals industry with substantial announcements in infrastructure, real estate, defence and railway sectors, which are known for their extensive use of metals. Mandar Wagh explores the future prospects of the industry, analysing financial performance, risks and growth triggers

time-read
6 mins  |
March 11, 2024