See: Over-leveraged.
Think: gymnasts doing splits. Overextension happens on a lot of fronts. And more than just stretching groinal areas.
Companies commit to producing 14 million units when they really only have capability of producing 8 million. They're overextended with their buyers who likely themselves have committed to others to deliver 14 million units.
Overextension happens in credit as well. Companies think that they'll keep growing forever. They borrow $100 million at 7% only to find that their business has turned for the worse and they can't pay the piper. They lose the company to a bankruptcy system and, well, they cry. Try doing that while you're doing one of those hurdler stretches and you'll catch the vibe.
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Finance: What is the Debt to Equity Rati...18 Views
Finance allah shmoop shmoop What is the debt to equity
ratio or duras It is named in insane asylums all
over the world Well it's a balance sheet computation that
tries very roughly to measure how efficient a company is
using its precious capital resource is the numerator comprises long
term liabilities on ly For most companies with debt the
amount of long term debt vastly outweighs the short term
So they ignore the short The denominator is the company's
shareholder's equity Easy You know that computation right ale and
think that's the capital invested in the business that's what
Isthe so what does it mean to have a high
durer Well if shmoop a loops llc a producer of
the most delicious cereal on the planet has four billion
dollars of debt And on lee fourteen dollars of equity
will you don't have to be a wall street genius
to get that that's bad right Tons of debt almost
no equity It means that loans comprise some ninety nine
percent of the company and well that it is essentially
owned by the bank and other creditors not by the
equity stake holders And you want steak Flip things around
Your cisco networks with a billion dollars of debt and
like fifty billion dollars of equity Well the shareholders clearly
owned this company The size of the equity dwarfs the
size of the debt Got it Bottom line High ratio
bad low ratio Good at least if you're one of
the owner investors But if you're a banker with a
hankering to own a cereal company well then today you 00:01:33.338 --> [endTime] might be able to just take one over girls
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