Why Bother with Your Company's Overall Debt Load?
Evaluating and understanding your organization's total debt along with equity will help set up boundaries as to how far the company can reach and what it can and cannot do financially.
Determining the appropriate mix of debt and equity financing is a complex process. It is accomplished, in part, by assessing the organization's debt capacity, the level of risk the organization is willing and able to accept and rating agency benchmarks. In the past, organizations tended to rely on fixed-rate debt to fund capital expenditures. Now, organizations actively manage debt and equity to increase flexibility and obtain capital at the lowest cost. Financial leaders must determine the appropriate mix of equity and debt financing, including the appropriate mix of traditional and nontraditional debt, to secure the maximum amount of capital at the most favorable rates
Knowing the limits of your own organization is extremely important in order to determine where to allocate funds and how much should be invested in the future. Managing debt and using equity to your advantage will help enable the company to stay on the path of success and be prepared for whatever unexpected events that may occur in the future.