Debt and Capital Structure

Debt divides the business's cash flow between fixed obligations and residual claims. It can increase the return on equity when the enterprise performs well. It can also make a temporary operating problem irreversible by creating a payment or maturity that the company cannot meet.

The correct amount of debt depends on the business and the structure. Recurring revenue, low capital needs, and stable margins may support borrowing, but none is conclusive. Customer concentration, regulatory exposure, acquisition spending, and working-capital volatility can consume liquidity even in an apparently predictable company.