Why does debt negatively affect the net income??



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If a Telecom Company borrows Rs.5,000 Crores for expansion, this will negatively affect the Company's ? Why this is so i am still not getting it.Kindly tell me in brief with full explanation

2 Answer(s)


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5,000 crores in new debt means that company has to pay interest expense of around Rs.500 crores (@10% interest). This will reduce the net income and hence price per share.

This is not always the case. If the debt is used to invest in high ROI projects then the net income will increase even after the interest payments and share prices will go up. So new debt is not always a bad thing.

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thanks Binny for an early reply

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