How Much Debt is Too Much Debt?

Debt can make or break a company, so investors must understand how to analyze it. In this episode, we uncover the advantages and risks of debt, explain key ratios, and share concrete examples of companies handling debt well—or poorly.

You’ll Learn

Why Debt Isn’t Always Bad
Debt can be a powerful leverage tool, allowing companies to fund large projects and achieve growth. Actually, avoiding debt entirely might limit a company’s growth potential.

Credit Ratings: A Useful But Incomplete Tool
Credit ratings from agencies like S&P Global, Moody’s, and Fitch provide a forward-looking view of a company’s ability to meet its financial obligations. While useful, they must be contextualized and combined with more profound analysis.

Debt Ratios: What to Watch
Key liquidity ratios (current, quick, and cash ratios) show short-term financial health, while solvency ratios (debt-to-asset, debt-to-equity, and financial debt to EBITDA) reveal how debt is managed long-term. Always consider these in the context of overall business performance.

Case Studies: BCE (BCE) vs. Broadcom (AVGO)
BCE’s over-reliance on debt, stagnating revenue, and rising costs explain the signs of weak liquidity ratios… and possibly an upcoming dividend cut. In contrast, Broadcom’s growth-focused debt strategy is supported by strong revenue, cash flow, and R&D investments.

Strategies for Assessing a Company’s Debt
Debt analysis is about more than just numbers—it’s about understanding the bigger picture. Use credit ratings and ratios to confirm your overall analysis, and make sure to spot red flags!

These Stock Ideas Show Growing Trends and Debt Under Control

One of the best ways to ensure a company can handle its debt is by looking at the growth it can generate. At Dividend Stocks Rock (DSR), we use the dividend triangle: growing revenue, earnings per share, and dividend trends. Each year, we select companies with growing trends showing a good entry point for dividend growth investors. These picks should outperform the market, deserving their names of Top Stocks for 2025!