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Importance of Debt-Equity Ratio

The debt-to-equity ratio indicates the level of risk associated with a company’s financial structure and management. The ratio shows how much debt a company is using to conduct its business and how much financial leverage it has available. The liabilities and commitments held by the organization to repay them over time are referred to as debt.

The debt-to-equity ratio, for example, gives a picture of a company’s capital structure and success potential. Business executives who understand the benefits, intricacies, and significance of the debt-to-equity ratio may use it to help their company compete in competitive marketplaces.

Because a high debt-to-equity ratio lowers a bank’s odds of being repaid, it may refuse to offer additional funding or only supply it in unfavorable conditions. If your debt-to-equity ratio is 2 and the bank’s cutoff is 1.5, you’ll probably be denied a loan. A lower debt-to-equity ratio indicates that a business is less reliant on debt and has a better equity position.

Debt to Equity Ratio =(Total Liabilities)/(Total Shareholder Equity)

Advantages of debt-free firms

Debt-free businesses are unaffected by a slowing economy or an increase in interest rates. They can run their business even if the economy is slowing down. Debt-free firms are low-risk investments preferred by both amateur and professional investors.

AS they are debt-free companies that can provide superior returns. Debt is only a short-term fix for the financial crisis. Debt has a higher long-term cost. A debt-free corporation pays a higher dividend yield and has a higher return on equity. You will receive a decent dividend yield or dividend distribution from the firm or stock you have invested in as a retail investor of that particular stock. So, before buying, do your homework and look at a stock’s debt ratio.

How to Find Debt-Free Companies?

Step 1: Visit- Screener Website

Step 2: Register with the screener website or log in with your credentials

Step 3: find the query builder.

Step 4: Type Debt to Equity = 0

Step 5: Click on Run the query

The screen will display a list of all the debt-free companies in India.

You can also add more variables to this query to make it more personalized. If you wish to locate a firm with a debt-to-equity ratio of zero and a market value of more than 50,000 crores, use the query builder to create the following query.Debt to equity = 0 AND

Market Capitalization > 50000

This query generator can also be used to filter out companies with various financial ratios such as PE, ROE, PEG, and so on.

Disadvantages of Debt Free Companies

When a corporation chooses stock financing over debt, it may face higher taxation. The capital raised through the sale of shares is referred to as equity financing.

If equity financing is favored over debt financing, the earnings per share (EPS) ratio will be low.

These enterprises lose out on the ‘tax shield’ to a greater extent since they do not have the ideal or an acceptable amount of debt. The concept of tax shield refers to a company’s interest payments being treated as an allowable expense, hence reducing its tax outflow to some extent. Furthermore, investors may regard debt-free enterprises as being less proactive.

Best Top 10 Debt-Free Companies To invest in 2021

Best 10 Debt-Free Company Stocks To Invest In India 2021

The following is a list of the firms with the highest market capitalization that have no debt.

Conclusion

Companies handle their financial needs through equity, debt, or cash generated internally. Internally produced cash is the most preferred form of finance, followed by debt, while equity is the least favored form, according to statistical results. The reason for this is unmistakablye due to the accompanying expenditures. However, the other element, which is the growth factor, must be investigated. In their quest to remain debt-free, a corporation may neglect to invest in future capacity and expansion. This may result in the company’s growth being stifled.

In this case, the company is good, but from an investment standpoint, you don’t have much of a choice. As a result, you must investigate the company from each of these angles.

Disclaimer

Our content is designed for and must be used solely for the purpose of providing information and education. Before making any investment based on your own unique circumstances, it is critical to conduct your own analysis. If you want to rely on any information you see on our Website, whether for the purpose of making an investment choice or otherwise, you should seek independent financial advice from a professional or independently study and verify it.

Uncollected exemptions

In order to determine the genuine tax burden of employees, they are responsible to furnish their investment proof in December or January to their employers. If you were unable to furnish documentation of your investments and TDS was already withheld from your salary, you may be eligible for a refund when you file your return. Tax experts recommend taxpayers stay on hold until July 15 to ensure that all TDS withheld or TCS paid in their favour is recorded on their Form 26AS. It should be remembered that the deadline for filing TDS and TCS taxes has been postponed till June 30.

Updated tax forms

The tax department has recently notified about the new ITR forms. As a result, to choose the appropriate ITR form you need to know about these changes. Certain adjustments have been made to the eligibility conditions in ITR 1, which is utilised by salaried individuals, this year. This year, the ITR 1 form will not be relevant to anyone who paid TDS for a cash withdrawal under Section 194N. Employees who have unpaid tax on employee stock options (ESOPs) are likewise unable to utilise the ITR 1 form. Therefore, before submitting your return, make sure you use the correct form.

The tax regime for business owners

According to tax professionals, selecting a tax regime is more important for business owners since they are only allowed to make this decision once. They cannot modify their tax regime once they have chosen it. Salaried persons with earnings from salary, residential property, and other sources, on the other hand, can modify it in every assessment year. Business owners should also keep in mind that the deadline for submitting a tax audit report is September 30th of the assessment year, the deadline for submitting a return if a tax audit is pertinent is September 30th of the assessment year, and the deadline for submitting a return if a tax audit is not relevant is July 31st of the assessment year.

New and old tax regime

Individual taxpayers will be able to select between two tax regimes beginning in the fiscal year 2021. Under the new regime, implemented in Budget 2020, tax is payable on income up to Rs. 15 lakh at lower slab rates than the old regime, but the taxpayer will relinquish several deductions and exemptions available under the previous regime. Since it is recommended that a taxpayer select the regime at the outset of the year, he can also do it while lodging his IT return if he was unable to make the scheduled investments or expenditures for which he might seek a tax exemption under the old tax regime. Taxpayers should also bear in mind that under the new regime, tax slabs of 5%, 10%, 15%, 20%, and 25% are payable on each subsequent rise of Rs. 2.50 lakh from the initial deduction of Rs. 2.5 lakh up to 15 lakhs of overall income. Salaried individuals can’t make use of important advantages such as standard deduction, House Rent Allowance (HRA), Leave Travel Assistance (LTA), and so on under the new tax regime.

New extended deadline

In light of the Covid-19 epidemic, the deadline for submitting ITR has been postponed to September 30 this year. Therefore, if any advance tax is owed, pay it as soon as possible to minimize penal interest. If self-assessment tax is submitted after the due deadline of submitting ITR, penal interest under section 234A is usually charged. The interest is charged at 1% each month or part of a month. This financial year, the CBDT has made an exclusion for such interest payments if the self-assessment tax due after TDS, advance tax, and other deductions should not surpass Rs 1 lakh. That being said, interest will be charged under Section 234B if the taxpayer has not submitted advance tax or if the advance tax paid is less than 90% of the overall tax amount. According to tax professionals, if the taxpayer fails to submit the advance tax in the specified quarterly instalments, penal interest under Section 234C would apply.

Deadline for PAN-Aadhaar linking

The income tax department has set a June 30th, 2021 timeframe for the PAN-Aadhaar linking. If this is not done, one’s PAN card will become inoperative. All transactions that need a PAN cannot be undertaken in this circumstance. Furthermore, owing to the incomplete KYC (Know Your Customer), you would be barred from subsequent transactions. The income tax department may levy Rs 10,000 as a penalty on individuals who use inoperative PAN cards. According to tax law, if Aadhaar is not linked to a PAN, taxpayers would be unable to perform certain financial transactions. This may also result in Rs 10,000 as a penalty under Section 272B of the Income Tax Act. In order to link your PAN with Aadhaar on the new income portal, please click here.