In general, incurring debt is perceived as something negative, when this shouldn't always be the case, as it all depends on the objective to be achieved and the future repayment capacity available, where the CFO's role has much to contribute in this management.
In itself, debt is a tool ("powerful" if used correctly), which allows not only to optimise the capital structure, but also to tend towards an improvement in the average profitability of the business, provided it is correctly applied to assets with returns higher than its cost, and thus "accelerate" the company's growth.
It is here that the CFO must assume the role of "architect," both in the design and construction of an optimal and balanced relationship between equity and the possibility of accessing external resources.
We are talking about an action that requires not only precision, but also a precise vision of the future of the business, where the risks to be assumed must be balanced with the expected returns.
However, just as in physics, "every applied force has its counterweight," so an excessive level of debt can destabilise the financial structure, and cause future cash flows to be insufficient to amortise both the principal and the interest.
It is important to emphasise that while well-managed debt can enhance profitability and expansion, poorly structured debt could even compromise financial stability and even lead the organisation to a state of insolvency, from which it is very difficult to emerge.
It should not be forgotten that the fundamental advantage of indebtedness in a company is still economic, provided that the returns obtained on the assets to which it is directed are higher than its cost.
This is why incurring debt can be the most profitable option, provided that this relationship can be maintained, as otherwise, "happiness ends," increasing the patrimonial risk on a possible default.
At the same time, it must be considered that there are no "magic formulas" or "recipes" that can define what the ideal proportion is, which a company can assume on equity and debt levels.
It is the CFO's task to make the best decisions in this regard, with the aim of finding the best possible "balance," which means assuming a risk, which in turn, must be managed.
Therefore, it is essential to differentiate "good" debt from "bad" debt, ensuring that the level that is finally assumed in the organisation is at all times a strategic tool aimed at growth and that it does not become an unsustainable financial burden over time.
For this reason, a prior analysis of the expected return must be carried out, by simulating different scenarios, and the same for their corresponding amortisations, assuming leverage levels that do not generate unnecessary risk, for which certain monitoring ratios may be useful, such as: Debt/EBITDA, Debt/Equity, etc.
It is also essential for the CFO to know how to select which type of debt best suits the objectives that the company has at any given time, considering the "time" of what is sought to be financed (short vs. long term), as well as the instruments that best adapt (credit policies, mortgage loans, syndicated loans, etc.).
Therefore, it is part of the CFO's role to be able to act as the strategist who uses the potential of debt, not only as a way of obtaining funds, but rather as the "catalyst" that favours sustainable growth and value creation for the organisation in the long term.
Their success depends not only on being able to access financing, but rather on knowing when, how and for what purpose to use debt, maintaining at all times the balance between the desired growth and the possible risk that can be assumed.
