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8 April, 01:54

One of Warren Buffett’s acquisition criteria is to invest in businesses "earning good return on equity, while employing little or no debt." Why is Buffett concerned about debt?

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  1. 8 April, 04:15
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    Buffett is concerned about debt in business as they analyse the financial statement of business before acquiring it or investing in it, as it suggest the future financial position of the company and it's ability to generate consistent earning for the company. They focus on return on equity rather than debt, as regulatory body, credit agencies, and creditors use financial statement to decide on company's worthiness by evaluating company's debt and lending term. Debt become obligation for the company and its shows weak accounting and financial position of the company. The warren buffett's investment policy is to acquire and hold companies for long run, therefore return on equity is a better parameter to evaluate any company.
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