From the posting: Regarding QL Again
- K C said...
Is debt bad?
Corporations borrow money to do business and investors earn amplified returns from the financial leverage. There is an option value of a leveraged business. Hence borrowings is not a bad and in fact it is good thing provided that the borrowings is not excessive and it earns a return higher than the after tax cost of borrowings and that EBIT is able to pay the interest costs comfortably. In QL Resources case, with a relative high leverage of 2.35, QL obtains an excellent ROE of 22% (>15%). ROIC is about 13.5% (>12%), showing a good utilization of capital. Times interest earned is 10 and with good cash flows from operations. Hence I think the management of QL has done a good job in growing the company with proper utilization and management of debt.
Let me just share it here so that everyone can have a more 'balanced view'.
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