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Debt is like a double-edged sword; let’s understand how. Many companies need debt as they cannot grow with limited capital. At the same time, huge debt can be a burden for a company’s financial well-being, hanging like an albatross around the neck. But in India, some companies have managed their finances so well that they are totally debt-free & stock market investment ready for you. If you are someone looking for stocks to buy today, it is advisable to search for such debt-free companies.
What are the advantages of a debt-free company?
The advantages of being debt-free are that the company has fewer liabilities, which frees up the management’s hands to deploy the funds in yield-generating activities. There is no pressure on the management to repay liabilities timely, allowing the leaders to focus on running and growing the business instead.
How to calculate the debt liability of a company?
Every business needs capital. Capital is used for daily activities; it is also necessary for expansion or to implement new ideas. Companies raise capital either by issuing securities like stocks or by borrowing from a bank or a financial institution. A company’s debt-to-equity ratio can be used to find the quantum of a company’s debt obligations.
Formula: Debt-to-equity ratio = Total debt/ Shareholders’ equity
- Understanding the debt-to-equity ratio
A higher ratio implies that the company has excessive debt, and investors need to be cautious. In contrast, a lower ratio signifies that the company is primarily self-reliant. When a company’s debt-to-equity ratio is 0, it means that it has no debt. In market parlance, debt to equity ratio of anything less than 1.5 is considered satisfactory. However, what an ideal debt-to-equity ratio is will vary depending on the industry.
- How to check for a debt-free company before investing in the stock market?
Financial professionals thoroughly scrutinise a company’s balance sheet to check for debt and other liabilities. Debts can be secured, unsecured, revolving, or mortgaged. Debts can be long-term or short-term. Generally, these professionals release their findings, which investors can assess to gauge a company’s debt position.
- Here is another way to identify debt-free companies
A more straightforward way to identify debt-free companies in India is to simply access various financial portals specialising in stock research and analysis and get the information at the click of a button.
Top debt-free companies in NSE 2021
Let’s look at some of the debt-free companies in NSE 2021 before you make decide on stocks to buy today:
- SBI Life Insurance
- TCS
- IRCTC
- New India Assurance Company
Debt-free small-cap companies in India 2021
Apart from the top-notch large-cap companies that are debt-free, there are certain debt-free small-cap companies in India 2021. Through clever management of finances, these small-cap companies have managed to unburden themselves from the shackles of debt, saving expenses on interest payments and being more ready to face challenging times. A debt-free business even helped these companies cope with the pandemic. Mazgaon Dock and Sun TV Network are amongst such companies.
Invest in stocks of debt-free companies
Investors need to consider all factors before committing to any company. Although being debt-free has several advantages, on the flip side, if capital is raised through equity, the company may face higher taxation. Hence, the Earnings Per Share (EPS) ratio can be lower. So, you as an investor need to take a balanced view of all factors before investing in stock market. If you need help with identifying debt-free companies in NSE 2021, you can consider seeking expert help and guidance and make your stock market investments unique to your goals and risk appetite.
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