Bad Business Debt – Part II

 

 

If all corporate debt is good, than why is one of the most successful companies ever to grace planet Earth completely debt free?  If debt is so good and provides so much so-called tax relief, why is the company that produced the richest man in the world debt free?  Of course, I am talking about Microsoft, which has no debt and, at one time, had fifty billion in cash!  That’s a cool fifty-thousand-million dollars.  Not only this company, but also many others are debt free.

 

Thousands of others like it have chosen to have absolutely no corporate debt.  These companies include Walgreen, Cisco Systems and William Wrigley.  Cisco Systems has never borrowed money and does not plan to.  Cisco Systems, the networking company, funds its own expansion instead of borrowing money. 

 

Not having debt helped companies survive during the dot-com bust.  Cisco earned $772 million during one quarter, while Lucent (a company in great debt) lost $7.9 billion.  At one time Lucent paid interest each quarter on $3.2 billion.  Walgreen expands its drugstores by the monthly cash it generates.  Its corporate philosophy, according to a company representative, is “We’re a pay-as-you-go type.”  A competitor of Walgreen is Rite Aid, which at one time struggled with paying interest on a heavy debt load of $3.7 billion.

 

Wrigley, the chewing-gum maker, has never had any long-term debt since it was founded some 110 years ago.  Ross Stores doesn’t borrow any money to expand.  Each new store costs $1.3 million to open, but generates an average of $6 million in revenue the first year of business.  In the Northwest USA where I live, 34 major companies alone have no debt.

 

Use the information I have just provided to think about paying cash.  If you don’t have the cash, don’t make the purchase!  Use the “cash paying” model of these companies to improve your own personal family financial balance sheet.  Perhaps you have made some mistakes in the past.  Yes, you must now dig yourself out of debt.  Your past is important, but not nearly as important to your present as the way you see your future.

 

So is there really good debt?  Not in my opinion.  Perhaps, at best, some debt is tolerable for a short time period if you need a roof over your head or a yard for the kids to enjoy.  Make a commitment to your future and the future opportunity of your family.  Choose now to pay cash.

 

 

Your thoughts on this subject?  Your comments appreciated!

Content © Rich Brott, 2011

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