Reply to post: Re: €27bn debt. Just let that sink in

Vodafone hacks dividend as it reports €7.6bn losses for FY19

Fatman

Re: €27bn debt. Just let that sink in

<quote>That encourages companies to over-use debt.</quote>

But, here is the problem with debt:

You must service (pay off) debt; regardless of your revenue stream. Debt holders expect to be paid in accordance with the terms of their loan agreements. Default on them, and the shit may hit the fan. You better service that debt or else those loans might get called.

Cash flow dries up?? How do you find the funds to service that debt when income has dropped - by cutting costs? Often that means laying off employees. Laying off employees can signal the beginning of downward "death spiral". It most certainly hurt morale, and may cause some of your more valuable employees begin to wonder "if the handwriting is on the wall", and bail. Then you may be stuck with the 'less desirable' ones.

Shareholders knew that by investing in the company they would reap the feast; but also have to endure the famine. Debt holders just want their money.

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