alt Hacker NewsMy point was more of an exercise to point out that finance is about mutating resources. A lot of cash can be a good thing or a bad thing. Same for debt. There’s nothing inherently bad about levels.
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Retric • yesterday at 2:20 AM
Debt always raises risks, it can be rational but an asset rich and debt free business is vastly less likely to suddenly fail which has a real impact on rational evaluation of the value of their stock.
While there may not be anything inherently bad about debt levels, the level of debt fundamentally affects stock price by the equation of total enterprise value = stock + debt - cash (i.e. total enterprise value is the amount someone would need to pay to buy all the outstanding equity AND take on or retire the outstanding debt). So if there is hidden debt that isn't being factored in by investors in means the stock price should go down because "how much a company is worth" (i.e total enterprise value) would remain the same, it's just now that more is debt and less is shareholder equity.