Fixed Assets to Debt Relationship
Every business owner, especially young entrepreneurs, must understand how long-term debt is used to finance the purchase of fixed assets. It is a basic principle especially for start-ups. There is a relationship that exists between the two. If created correctly, profitability is enhanced and cash flow is maximized. But most business owners lack the knowledge about the fixed assets to debt relationship.
This article explains three important rules that if broken will overwhelm operations and working capital, in most cases it will doom the business to failure.
- RULE #1 – Proper leverage for the respective asset;
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