Consider the following excerpt from an article published in Forbes: The Supersolvent No longer is it a
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The Supersolvent No longer is it a mark of a fuddy-duddy to be free of debt. There are lots of advantages to it. One is that you always have plenty of collateral to borrow against if you do get into a jam. Another is that if a business investment goes bad, you don't have to pay interest on your mistake . . . debt-free, you don't have to worry about what happens if the prime rate goes to 12% again. You might even welcome it. You could lend out your own surplus cash at those rates.
The article went on to list 92 companies reporting no more than 5% of total capitalization in noncurrent debt on their balance sheets.
Required:
Explain how so-called debt-free companies (in the sense used by the article) can possess substantial long-term debt or other unrecorded noncurrent liabilities. Provide examples.
(CFA Adapted)
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Related Book For
Financial Statement Analysis
ISBN: 978-0078110962
11th edition
Authors: K. R. Subramanyam, John Wild
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