Low debt mid caps
Midcap stocks that are fundamentally stable with low debt to equity ratio and have shown consistent ...
Debt or borrowing is a common term that we use in our daily lives. Be it a car loan, home loan, or any other form of borrowing. Most of us are aware of how debt behaves and how it can impact our spending and monthly budgets.
Usually, when we speak of debt, it is perceived as a dangerous source of capital because of the consequences that it can create if not repaid in time. This aspect of debt is also true in the capital structure of public and private companies. Every company, whether it is listed or not, uses debt as a portion of its capital to fund their operations and other financial obligations.
What is Debt?
Debt is an accounting term used extensively in the financial sector that represents the amount of loans or borrowings that companies raise as a part of their capital structure. To put this in perspective, imagine you own a company and currently have Rs 1,00,000 in capital in the form of equity. Now, you need more money to expand your business, and to do so, you take a loan from a bank of Rs 2,00,000. This 2,00,000 debt is now a part of your capital structure, and you are supposed to repay it within a stipulated time as per a repayment schedule.
In simple terms, debt is nothing but that portion of your total capital that is funded through some form of borrowing and is required to be repaid in a fixed time. Debt is represented as liabilities in the balance sheets of companies.
- The capital structure of a company constitutes both debt and equity as a part of capital.
- Debt represents the liabilities section of a company’s balance sheet.
What Is the Debt-To-Equity (D/E) Ratio in the Stock Market?
As mentioned above, a company's capital structure is formed by combining debt and equity. Both these source of funds has their own benefits and risks, which investors closely analyse before they invest. To streamline the analysis and investment process, stock market participants use the debt-to-equity (D/E) ratio as a tool for assessing a company’s financial position.
Debt-to-equity (D/E) ratio meaning - It is a ratio that represents the relationship between the debt and equity portion of a company. This ratio provides insights into how much share of a company’s capital structure is funded through debt in relation to the equity portion.
What are Midcap Stocks in the Share Market?
Midcap or mid-capitalisation stocks refer to a set of listed shares or companies that are ranked from 101-250 on the markets and have a market cap of Rs 5000 cr. - 20,000 cr.
Midcap stocks lie between small and large-cap companies. Mid-cap companies are more stable and have higher growth potential than other companies and, therefore, offer balanced investing opportunities with, relatively lower risk.
What are Low Debt Mid Cap Stocks?
Low debt mid-cap stocks is a term that is used to describe publicly listed companies that fall in the midcap category and have a small part of their capital structure funded through debt, which is reflected in their low debt-to-equity (D/E) ratio. One more important attribute of low-debt midcap stocks is that they usually show positive EPS growth over the years and have strong fundamentals.
- Fundamentally strong mid-cap stocks that have low debt-to-equity ratios are called low-debt midcap stocks.
Key Takeaways On Low Debt Mid Cap Stocks
- Debt is the amount of money or capital a company owes to others.
- The debt-to-equity (D/E) ratio is a financial measure that represents the relationship between the debt and equity of a company. It depicts what portion of a company’s capital structure is funded through debt relative to its equity.
- Midcap stocks are listed shares ranked from 101 to 250 on the stock market, with a market cap of Rs 5,000 cr. to 20,000 cr.
- Low-debt midcap stocks are shares of fundamentally strong listed companies with low debt-to-equity (D/E) ratios.
- Low-debt midcap stocks have very low debt in their capital structure and carry lower risks.
FAQs
What is debt?
In simple terms, debt is the amount of money you owe somebody. However, in the stock market, debt reflects the amount of liabilities raised by listed companies.
How can I calculate the debt-to-equity ratio of a company?
You can calculate the debt-to-equity (D/E) ratio by dividing total liabilities by the shareholder’s equity of a company.
Debt-to-equity ratio formula = Total Liabilities/Shareholder’s Equity
How can I identify low-debt midcap stocks?
You can identify low-debt midcap stocks using financial websites, news channels and stock market screeners.
What is market capitalisation?
Market capitalisation, also known as the market cap, refers to the market value of all the outstanding shares of a company. A company’s market cap is calculated by multiplying the outstanding shares of a company by the current market price per share.
Is investing in low-debt midcap stocks risky?
Stock market investing always has a set of implied risks; therefore, investing in low-debt midcap companies can be risky, too. However, these stocks have low debts and provide stable growth in the long term, so you can invest in them by doing robust research and analysis.