Corporate Undertaker by Domenic Aversa - HTML preview

Lessons for Adversity

8. Beware of excess debt.

The immediate tendency of a business in trouble is to leverage assets and borrow more money. There are legitimate times when you need debt or equity to finance growth or perhaps to deal with a seasonal financing issue. However, once a company uses additional financing to resolve a cash shortfall without understanding the true nature of the problem, it will most likely become dependent on that habit and it will eventually run out of assets to leverage.

Task: Review the debt burden, the cost to service debt, and the debt ratio. What is an acceptable ratio to grow the company? Review senior vs. unsecured debt.