2. Due to the existence of "financial leverage effect" in financial management, if the debt interest rate of an enterprise is much lower than the return on capital, it can gain greater benefits when the return on capital increases.
3. In the environment of social market economy and inflation, the actual repayment value of the enterprise is likely to be lower than the value of the borrowed money, so that the enterprise can benefit from the currency depreciation caused by economic inflation.
Extended data:
Benefits of moderate debt of enterprises:
1, the role of "tax shield"
Interest acts as a "tax shield". For example, if the corporate income tax rate is 25% and the bank loan interest rate is 6%, then the corporate bank loan interest rate is only 4.5% in terms of after-tax profits. Because 1.5% of the borrowing cost is offset by income tax.
2. Reduce the agency cost of the company.
In the environment of debt management, management will face the pressure of repayment at any time, which may reduce the abuse of surplus cash by management invisibly, thus inhibiting blind investment behavior.
3. The amplification effect of financial leverage?
In the absence of debt, the return on equity of shareholders (the return of every dollar invested by shareholders) is consistent with the return on assets of the company (the profit generated by every dollar invested by the company).
Liabilities will amplify the capital invested by shareholders in the company, and the profits generated by this part of capital generated by liabilities belong to the shareholders' remuneration of the company. Since ROE = profit/equity, these liabilities obviously increase profits without affecting equity, thus improving the return rate of shareholders.
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