Debts, Loans and Mallya #3 Multibagger Magic Mantra

Debts (loans) are sometimes necessary to run a business, to acquire companies and for manufacturing capacity expansion.

But, very high debts can literally kill a company!

It is better to go to bed hungry, than to wake up in debt!

Think about this, would you invest if Vijay Mallya started a new venture? Lol 😂

Stay away from companies whose debt/equity ratio is more than 1

In fact, I personally wouldn’t invest if debt/equity ratio is more than 0.5

Let's take an example of a company with good debt/equity Ratio: Maruti Suzuki (link)

Now, let's take a bad example: Idea Cellular (link)

Worst Case Scenario

There are few companies with negative debt/equity ratios, like Suzlon (link).
Stay away from such companies too!
Negative debt/equity ratio means the company's net worth is negative.
Very few bankers extend loans to such a company with a negative net worth unless there are extenuating circumstances, and there are assets that the company can pledge.

To summarize, while picking a multibagger stock, always check the company's debt/equity ratio.
Make sure debt/equity ratio is between 0 - 0.5.
Stay away from companies with debt/equity ratio of more than 1 and less than 0 (negative).

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