The Company Will Generate Various Liabilities In The Course Of Production And Operation.

The most common forms of liabilities are suppliers' payment, wages payable, taxes payable and other arrears in other activities.

In general, these arrears are in the normal production and operation process of the company, occupying resources of other companies or individuals without compensation, which virtually magnifies the capital invested by shareholders in the company.

The profits generated by this part of the capital are attributable to the remuneration of the shareholders of the company. Because the equity reward ratio = profit / interest, these liabilities obviously increase profits and have no impact on the rights and interests, thereby increasing the rate of return of shareholders.

In this sense, the more money the company has to pay, the higher the rate of return will be.

Of course, when a company takes up funds from other companies or individuals, your downstream customers will also take up your money without compensation, that is, you owe others money, others also owe you money.

Only when you owe other people more money than anyone else owes you will the company's interest rate be increased.

DELL is a good example of the successful use of this strategy.

Over the past 10 years, DELL has increased its debt to other people by increasing the accounts payable period (from 39 days in 1996 to 74 days in 2005), shortening account receivables (shortened from 44 days in 1996 to 30 days in 2005), reducing other people's liabilities to them, and effectively improving the liabilities that enterprises do not pay interest in the course of operation, thus achieving a high return on equity.

Although the interest free debt has no cost of capital, it may be a gain for enterprises occupying this debt, but this does not mean that there is no price for interest free liabilities.

Under normal circumstances, the interest free liabilities occupy the resources of upstream and downstream enterprises, which damage the interests of business partners, even though they can occupy them.

Enterprises in the enterprise, the ecological chain because of the large volume and have a greater say, but as a strategy, it is bound to affect the credit relationship between the company and the upstream and downstream enterprises.

In the short term, this strategy of "bullying the small" may not be the only way for a relatively disadvantaged enterprise, but in the long run, the accumulation of this credit risk usually affects the development of the enterprise itself, and even brings about a disaster.

Therefore, what kind of credit management strategy should be established is obviously not only considering the bargaining power of the enterprise itself, but more importantly, it should consider how to maintain it in the entire ecological chain.

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For the vast majority of enterprises, their claims and debts are usually offset.

Borrowing from banks is the most common way to borrow money in normal business process. However, how much money can be borrowed and how much interest can be borrowed will depend on the company's ability.

Just imagine, how can you lend money to a person who has no family and can't afford to eat? He can't be dragged into the bottomless pit.

Similarly, if the proportion of borrowings in the company's net assets is relatively small, the risk of borrowing from banks is relatively small. Enterprises can usually obtain such loans at relatively low cost.

If the company borrows much more than the company does,

Banks will also need higher interest rates to compensate for the risk of borrowing.

But in any case, companies usually borrow money from banks.

However, it is worth exploring that the interest of bank loans can usually be included in the pre tax cost of corporate finance, so interest will have the function of "tax shield".

For example, if the enterprise's income tax rate is 50%, and the bank loan interest rate is 10%, then, from the after tax profit, the bank loan interest rate of the enterprise is only 5%.

Because 5% of the cost of borrowing was offset by income tax.

In this sense, the government encourages enterprises to borrow money.