Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Tianqi Lithium Corporation (SZSE:002466) makes use of debt. But is this debt a concern to shareholders?


Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

# Pandemic Reopening: Give Advises to China's Tigers!

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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  • Jenjorjack
    ·2022-12-19
    Hard to judge long term permant loss a not
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  • bunnygirl
    ·2022-12-19
    ok
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  • erickhoosg
    ·2022-12-19
    ok
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  • ngph
    ·2022-12-19
    👍
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  • 暗黑传
    ·2022-12-19
    ok
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  • Kundos
    ·2022-12-19
    ok
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  • Jsgoh28
    ·2022-12-19
    Ok
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  • windy07
    ·2022-12-19

    Jshdb

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  • 会上吗
    ·2022-12-19
    ok
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  • PinkDolphin2
    ·2022-12-19
    A
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