What's Happening?
Debt is described as money borrowed by one party from another to meet financial needs, often involving interest. The Corporate Finance Institute explains how organizations use debt to procure goods and services, highlighting the importance of managing
debt effectively. The institute differentiates between good and bad debt, with good debt aiding financial management and bad debt decreasing in value post-purchase. Secured debt involves collateral, while unsecured debt relies on creditworthiness. Corporate debt options include bonds and commercial paper, allowing companies to raise funds for expansion.
Why It's Important?
Debt management is critical for organizations to maintain financial health and support growth. Good debt can enhance wealth and prepare for uncertainties, while bad debt can lead to financial strain. Understanding secured and unsecured debt helps organizations assess risk and make informed borrowing decisions. Corporate debt instruments like bonds provide companies with opportunities to raise capital, impacting their ability to invest in new projects and expand operations. Effective debt management is essential for sustaining profitability and avoiding bankruptcy.
