How to find debt free companies?
One of the most important things that we look at before buying stocks is the debt of the company. It gives us insight into the company's financial situation and liabilities. Low debt or no debt indicates good financials. Hence it is important to find debt-free companies for a good long term investment. That's why in this article we have put together everything you need to know for finding debt-free companies.
How to find debt-free companies?
Every company gets its capital from two main sources one is equity which it gets from its shareholders who are all owners of the company but the other one is a debt which the company gets from different banks in the form of loans and advances. You can find out any company's debt and many other financials on ticker
Now almost all companies borrow money from banks for leverage and liquidity so it is necessary to find if the debt is harmful to the company or not.
Debt to equity ratio
The debt to equity ratio is an indicator that can help us know the company's debt and financials. It is the ratio of a company's debt to a company's equity. The higher debt to equity ratio indicates the risk involved in the company. You can also compare companies debt to equity ratio with the other companies of the same sector to examine the company's financials. Low debt to equity ratio indicates a loaded company. The debt to equity ratio can help us find companies with high debt which are risky to invest in. Debt to equity ratio from 1 to 1.5 is considered good.
To find debt-free companies you can go to a biology screener and you will get the stock of your requirement within a second.
Why the debt of a company is an important factor while choosing a stock
- Debt-free companies give comparatively higher returns and dividend yields.
- A debt-free company indicates good financial management. As they make efficient use of their equity capital.
- Debt-free companies are less likely to go bankrupt so for those who want to invest in less risky companies debt free companies are for you.
- Debt-free companies are not affected even in recessions so they give good returns even in economic slowdowns.
While looking for debt-free companies? Do not forget that debt is just one aspect. No one can guarantee that the debt-free company will give good returns. Multiple sectors cannot function without debt but they still offer good returns to their investors. So while giving attention to the debt of the company do not forget to check other fundamentals as well as the business operations of the company.
Debt in desirable proportion indicates the company plans to expand the business which will be beneficial for the company's future and will result in growing returns.
To conclude investment in debt-free companies after researching every aspect is a good opportunity for those who want to play safe. But if you are looking for a growth company or company in a capital intensive sector, a debt in desired proportion or good debt to equity ratio is always a great indicator.
Now, what are you waiting for to find the company of your dreams on screener and make your money work for you!!
Happy investing!!