![]() ![]() ![]() However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. But the real question is whether this debt is making the company risky. ( NYSE:SHOP) does use debt in its business. The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin.
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