Debt and Equity
This article analyzes whether a family business with no debt, ample cash, and low dividends should proactively introduce debt, and outlines other potential advantages beyond the tax shield, such as optimization of capital costs, strengthened financial discipline, and signaling effects.
Dear All, I know it is common knowledge that a company should have some debt. Is it because of only the tax benefit? What about if a company has no debt but abundant cash reserves and healthy cash flow? There is a family company that I do work for. They only have 3 shareholders and don't pay much dividends as they prefer to leave it in the company. They do pay but maybe just once a year and even this is not a big amount. Would it make sense for them to take on some debt? If so then what are the advantages of so doing? Thanks, Ravi