Cash

What Can Be Expected of a Co. w/ Rising Net Debt & Falling Free Cashflow?

4 min read

A company whose net debt is rising while falling free cashflow can be expected to be heavily invested in its operations and strapped for liquidity. In such an environment, its ability to pay off debt is likely to be significantly lower than companies with more free cashflow. This can make it a risky investment for those looking to invest in it, as the debt can become problematic if the firm’s financial health deteriorates. Such companies may not be able to weather economic downturns as well as more liquid firms, and their borrowings can lead to further hardship. Consequently, net debt rising with falling free cashflow is a sign of caution for investors.