All lessons

Building up · 4 min read

Debt: the thing that decides survival

Debt isn't bad. Cheap, well-timed borrowing lets a good business grow faster than its cash allows.

The risk is fixed repayments meeting variable profits. When sales drop, wages can be cut and projects delayed — the interest bill can't.

The usual quick check is debt-to-equity: below about 1 is comfortable for most companies, above about 2 needs a very stable business to justify.

Remember

Debt is what turns a bad year into a permanent loss.

See a real example

Compare Nvidia, Home Depot and Carnival

Same idea, three levels of borrowing.

What this shows

Cash-rich companies can survive almost anything. Heavily borrowed ones need the good years to keep coming.

Keep going