This is the case especially capital-intensive companies such as oil companies, that before extracting the crude oil from the subsoil, they carry out dozens of explorations to find it, which represents a sunk cost. For these reasons they have to invest a lot.
Or of the car brands in constant innovation to build better engines or safer cars in the event of an accident.
others like the pharmacists, They spend years developing new drugs.
Netflix case
if we look the netflix platformbefore being able to fill the streaming site with series and movies, he had to pay actors, producers, screenwriters….
“Netflix continued to increase its loans to finance content creation, although its balance sheet is much healthier today than in the past, as evidenced by superior credit ratings,” says a study by Janus Henderson Investors.
And for all this, money was needed. Much.
Global ranking of most indebted companies
It is no coincidence that the 10 most leveraged companies in the world, according to the Janus Henderson reportbelong to sectors where a lot of research is neededwhere innovation is key or where competition is fierce.
In the first positions of the ranking we find the automotive companies Toyota and Volkswagen with a net debt in 2021 of US$186 billion and US$185 billion, respectively.
They are followed by three telecom providers AT&T, Verizon and Germany’s Deutsche Telekom with $182 billion, $174 billion and $153 billion of debt each.
For comparison, these figures are similar to that of all of Norway’s public debt in 2021 it rose to $176 billion or to that of Colombia until $171 billion in the same year.
What happens in Latin America?
If we look at countries, the companies of Mexico accumulate US$36,000 million in debt, while those of Colombia They owed some US$20 billion until June this year.
Those of Chile, US$12,000 million.
“Emerging market companies owe relatively little, reflecting more volatile economic conditions,” say Janus Henderson analysts Seth Meyer and Tom Ross.
But although the debt always indicates the financial health of a companyhaving a lot is not necessarily negative.
There are industrial sectors, such as car manufacturers or telecommunications companies, that need a lot of capital to function.
“Companies need to borrow money because Many sectors companies have the need to grow. Investment always requires financing, which can be via more capital, money from partners or loans,” explains Pedro Aznar, Professor in the Department of Economics, Finance and Accounting at the ESADE Business School, to BBC Mundo.
For the professor, debt is a good option as long as the expected return on investment exceeds the cost of debt, something that has been common in some sectors, with such low interest rates.
Then, Is it bad to have a lot of debt?
It all depends, experts say, on the balance between the value of what a company owns and what it owes.
“It is a relative question. The debt can be put in relation to the total assets of the company, to the value of everything it has. If a company has assets that may lose valueor of volatile value, the debt is a risk”, affirms Aznar.
“But if a company has safe-value assets backing its debt, a certain indebtedness is not negative: on the contrary, it allows growth, and also increases profitability”, he adds.
And since these figures are from the last fiscal year, it is likely that in the new economic environment, companies begin to be more conservative in the form of financing.
If profits fall, repaying loans can be more complicated.
Y a rise in interest rates -as we are seeing these months– also affects, since the interests of the debt go up and that damages the results.
“The fact of having to pay interest and principal when due makes debt riskier than equity as a source of financing for the company,” says Pierre Verlé, head of corporate debt at investment firm Carmignac.
“Slower global economic growth, including recessions in some parts of the world, is causing companies become more cautious“, estimate Meyer and Ross.
Source: Ambito
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