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UPS debt?
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<blockquote data-quote="KillerB" data-source="post: 853249" data-attributes="member: 35753"><p>Don't read too much into it... debt isn't necessarily a bad thing. Actually, it can be very beneficial for a company that is performing well... ie UPS. </p><p></p><p> Taking on debt is a very common practice in business. Its the cheapest way for a company to get the most bang for its buck. Why? The cost of debt is usually much cheaper than the benefits of having more money invested in the business. Also, there are big tax breaks with debt... the ratio of debt/equity is called Capital Structure.</p><p></p><p>Here is a very simple example:</p><p></p><p>Lets say UPS gets 15% profit from its business...</p><p>If they invest $100 Million of their own money in the biz... </p><p>they will end up with <strong>$15 Million</strong> profit.</p><p>Not bad.</p><p></p><p>Now, assume UPS borrows $50 Million with a 10% interest rate. ($5 Million interest charges)</p><p>This time they invest $150 Million in the biz. ($100 Million theirs and $50 Million from the bank)</p><p>They still get the get the 15% profit.</p><p>Their investment will produce $22.5 Million in returns. (15% of $150 Million)</p><p>However, they owe the bank $5 Million in interest charges.</p><p>This leaves them with <strong>$17.5 Million</strong> profit. ($22.5 - $5)</p><p>Even better!!!!... they got and extra $2.5 Million from their original investment!</p><p></p><p>Since a public company's (UPS) primary concern is to provide its shareholders with adequate returns, you can now see why its in their best interest to take on debt.</p><p></p><p>Don't expect UPS's debt levels to go away anytime soon, but don't worry... a healthy level of debt is a good thing!</p></blockquote><p></p>
[QUOTE="KillerB, post: 853249, member: 35753"] Don't read too much into it... debt isn't necessarily a bad thing. Actually, it can be very beneficial for a company that is performing well... ie UPS. Taking on debt is a very common practice in business. Its the cheapest way for a company to get the most bang for its buck. Why? The cost of debt is usually much cheaper than the benefits of having more money invested in the business. Also, there are big tax breaks with debt... the ratio of debt/equity is called Capital Structure. Here is a very simple example: Lets say UPS gets 15% profit from its business... If they invest $100 Million of their own money in the biz... they will end up with [B]$15 Million[/B] profit. Not bad. Now, assume UPS borrows $50 Million with a 10% interest rate. ($5 Million interest charges) This time they invest $150 Million in the biz. ($100 Million theirs and $50 Million from the bank) They still get the get the 15% profit. Their investment will produce $22.5 Million in returns. (15% of $150 Million) However, they owe the bank $5 Million in interest charges. This leaves them with [B]$17.5 Million[/B] profit. ($22.5 - $5) Even better!!!!... they got and extra $2.5 Million from their original investment! Since a public company's (UPS) primary concern is to provide its shareholders with adequate returns, you can now see why its in their best interest to take on debt. Don't expect UPS's debt levels to go away anytime soon, but don't worry... a healthy level of debt is a good thing! [/QUOTE]
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